Budapest Business Journal 2823

HUNGARY’S PRACTICAL BUSINESS BI-WEEKLY SINCE 1992 | WWW.BBJ.HU

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BUSINESS JOURNAL BUDAPEST

VOL. 28. NUMBER 23

DECEMBER 11, 2020 – JANUARY 14, 2021

SPECIAL REPORT

Deals of the Year

SPECIAL REPORT

Virus Infects M&A Market But Healing Starts While the second quarter of the year saw a significant slowdown on Hungary’s transactions market, vital signs started to become visible again following a slow summer period. The impact of the COVID-19 pandemic, however, is likely here to stay for a while yet.  12

SPECIAL REPORT

Real Estate Deals Concluded Despite Pandemic Investment activity for the year has been negatively impacted by the coronavirus, although a recovery in the mediumterm is expected as market fundamentals in, for example, office and industrial, remain positive.  15

Pointing the way on Energy N ES BUSI

SOCIALITE

A Festive Round for the Holidays.

Cheers!

Tamás Borbély, who plies his trade at his family’s winery, Borbély Családi Pincészet, in the volcanic region of Badacsony on the northern side of Lake Balaton, has been named the Hungarian Wine Academy’s Winemaker of the Year for 2020.  19

NEWS

Industry out of Deep Water, but Investments Still Lag

S

Hungary has made significant progress in diversifying its energy sources and modernizing and expanding its energy infrastructure for its security and to meet EU energy targets, Péter Szijjártó, Minister of Foreign Affairs and Trade, tells the third Budapest Energy Summit. But questions remain. 6

Third quarter data from various areas suggest that the worst is over, and there is finally light at the end of the tunnel for the Hungarian economy, which was heavily impacted by the COVID-19 pandemic.

Consumer consumption and investments, however, are yet to catch up.  3

BUSINESS

HIPA-AmCham Co-host BSC Conference, Awards A comprehensive survey of 67 business services companies was the focus of the main presentations for the annual BSC conference and awards ceremony, co-organized this year

by AmCham and HIPA.  10

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News

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Budapest Business Journal | December 11, 2020 – January 14, 2021

THE EDITOR SAYS

EDITOR-IN-CHIEF: Robin Marshall EDITORIAL CONTRIBUTORS: Kálmán Béres, Zsófia

Czifra, Kester Eddy, Bence Gaál, David Holzer, Christian Keszthelyi, Gary J. Morrell, Nicholas Pongratz, Gergely Sebestyén, Robert Smyth, Zsófia Végh.

LISTS: BBJ Research (research@bbj.hu) NEWS AND PRESS RELEASES:

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The Budapest Business Journal, HU ISSN 1216-7304, is published bi-weekly on Friday, registration No. 0109069462. It is distributed by HungaroPress.

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BBJ-PARTNERS

If you are familiar with Christian seasons (other religions are available), you will know all talk of Christmas presents is premature right now in Advent. Advent is to Christmas what Lent is to Easter (other religious festivals are available), a time of preparation for the main event, although given it ends with a birth, something always to be celebrated, Advent is generally more upbeat than Lent. At least in my mind, but I am no theologian.

Anyway, the point is that, by way of celebration, we will soon have a present to share with you: a new look to our bbj.hu website.

You might wonder whether the second wave of a global pandemic is a good time to launch a new website. Our response to that would be to say there is seldom a perfect time to do anything. We embarked on the plans long ago and are now at the stage where we think it is ready to go, which makes it the right time for this project.

The idea is to make the site more accessible, with articles presented in a clear and attractive design.

But the new website is as much about functionality as it is looks. It will be quicker to load and faster to navigate, with the articles themselves much easier to search through a wider choice of keywords. A big chunk of the work has gone into making it more compatible with Google analytics, so we also hope it will also be easier to find for those who do not necessarily know us. That means our articles, telling your stories (and, of course, those all-important advertising messages from our partners) can potentially find a much bigger audience.

It’s been something of a labor of love for those involved (not least our publisher and our website editor), and its gestation period would make an elephant proud, but we hope you will find the new look and functionality of the website worth the wait. Depending on how the final tests go, right now it is an open question whether this will be an Advent, Christmas or New Year present (my gut feeling says Advent, but I’m not a betting man). In any case, it will be with us soon enough. Please do drop us a line to let us know what you think.

This is our last print issue of the Budapest Business Journal in 2020, a year few of us will forget. While it will not recalled in blessed memory, there will still be much to celebrate. The rediscovery of community kindness, of a slower pace of life, of the potential for a better work/life balance, of more bird song and less pollution. And, of course, we have the wonders of modern science to celebrate. The pace at which researchers the world over have worked to find a viable vaccine has been remarkable, and we now have the hope of a more normal year ahead of us. Let us hope that in the rush to recover, we don’t forget what we learned anew this year.

However you celebrate it, let me wish you Happy Christmas/Ashura/Hanukkah/Holidays/Pancha Ganapati/ Winter Solstice/Yalda/Yule (delete as appropriate), and add the hope that 2021 will prove more peaceful, healthy and prosperous for all of us.

Robin Marshall Editor-in-chief

Photo by MTI/Attila Kovács

Photo by Fortepan/Gyula Hámori

VISIT US ONLINE: WWW.BBJ.HU

A TIME FOR GIFT GIVING

THEN & NOW

Even Mikulás (Szent Miklós or St Nicholas) arrived in a mask in this most unusual of years. The color photo from state news agency MTI shows a girl receiving her gift in Barcs-Somogytarnóca in Somogy County on December 6, the Feast of St Nicholas. In the black and white image from the Fortepan public archive, final touches are being applied to Mikulás somewhere in Hungary in 1953, a year when masks were not an essential part of the traditional get up.

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Budapest Business Journal | December 11, 2020 – January 14, 2021

News///macroscope

Industry out of Deep Water, but Investments Still Lag

Third quarter data from various areas suggests that the worst is over, and there is finally light at the end of the tunnel for the Hungarian economy, which was heavily impacted by the crisis caused by the COVID19 pandemic.

Consumer consumption and investments, however, are yet to catch up.

ZSÓFIA CZIFRA

The volume of industrial production grew 0.6% in October from the same month in 2019, according to a first release issued by the Central Statistical Office (KSH) at the end of November.

Based on working-day adjusted data, production rose by 2.7%. The growth was 2.8% compared to the previous month according to seasonally- and working-day adjusted data. In September, industrial production shrank by 1% on a year-on-year basis according to working-day adjusted data.

The manufacture of transport equipment, having the largest weight, as well as the manufacture of computer, electronic and optical products increased; at the same time, production volume dropped in the majority of manufacturing subsections, including the manufacture of food products, beverages and tobacco products.

In the first 10 months of the year, production was

8.2% lower

than in the same period of the previous year.

Industrial output in October, according to seasonally and working-day adjusted indices, was 2.8% above the level of

Changes in Consumer Prices in Hungary, November 2019-November 2020 Foodstuff Alcoholic beverages, tobacco products Clothing

November 2019 November 2020

Consumer durables Household energy Other items, fuels Services Total

Source:

the previous month, and grew by 66% compared to the nadir of April The second estimate of Q3 GDP data was also released on December 1, showing that the Hungarian economy did better than expected in Q3, bouncing back 11.4% compared to the previous quarter.

Overall Fall

In the first three quarters overall, economic output fell by around 5.5%. Year-on-year, GDP was down 4.6% in Q3. Almost half of this came from the service sector, more than a fifth was due to declining output in the construction sector, while industry was responsible for less than a tenth of the reduction.

Within services, the hospitality sector’s output plunged by 20.9% as the pandemic impacted tourism, and logistics output dropped by 19.9%. Information and Communication Technology output rose by 5.3%.

Analysts say that with a 5.5% contraction in the first three quarters, the outlook for the last quarter of the year is more dubious. They therefore put the annual GDP shrinkage at around 6%; the government expects GDP to fall back by 6.4% for the full year, which now seems rather pessimistic.

Based on current trends, the economy is likely to fall back by 6% this year, and will bounce back to an annual growth of 3.5-4%

in

2021,

says Dávid Németh of K&H Bank.

Gábor Regős, head analyst at Századvég Research Institute noted that the GDP

fall in the third quarter was lower than in the second quarter, so it seems that the economy has finally started to show vital signs. As coronavirus restrictions are still in place, it is likely that this year’s contraction will be around 6%; however, if restrictions persist, the decline might be bigger, he warns.

The most optimistic forecast was given by Péter Virovácz of ING Bank. He projects a recession of 5.8% for the entire year. According to him, the economy might recover by mid-2022, however, this will happen at different pace in different sectors.

Industrial Data

As for Q3 industrial production data, analysts said it shows that the industry is out of the water now and its performance might uplift fourth quarter GDP data, which might otherwise be compromised by weak investment and retail figures.

Industrial data was a positive surprise following rather disappointing retail figures, said Virovácz.

The good performance of the industry is in accordance with the positive confidence and purchasing manager indices, he said. The good figures are linked to vehicle manufacturing and the electronics industry. According to him, fourth quarter GDP data might be lifted by export figures, which, this time, will be triggered by industrial production.

Gergely Suppan of Takarékbank is even more optimistic, claiming that better-than-expected

Q3

industry

data show that the crisis is over in this area. Stabilization of the industry might continue in the upcoming months, and it can finally show an increase in the last quarter of the year, thus contributing to Q4 GDP by 1-1,5 percentage points.

But while industrial data give reason for optimism, investment figures are not so comforting. Investment volume in Hungary fell by an annual 12% in the third quarter of 2020, KSH data shows. In a quarter-on-quarter comparison, investment volume fell by a seasonally-adjusted 2.1%. Investment volume fell in most economic sectors except one: it jumped by 98.4% in healthcare due to pandemic-related spending, KSH said.

The decline in investment volume was most apparent at companies with high headcounts, especially at foreign-owned and state-owned companies.

In the first three quarters of the year, investment volume fell by an annual 8.6%, albeit from a high base.

Trade investments rose by 6.3% and investments in information technology by 3.4%, while investments in public administration edged up by 2.1%.

However, investment volume in the manufacturing sector was down by 18.2%.

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Budapest Business Journal | December 11, 2020 – January 14, 2021

Hard Rock Hotel Budapest due to Open in Summer CBRE have traced a development pipeline of 3,340 hotel rooms across 27 hotels in Hungary due to complete by the

The Hungarian developer Redwood Real Estate Holding is planning a soft opening of the Hard Rock Hotel Budapest in June 2021 after a postponement due to the coronavirus pandemic and the resulting downturn in the tourism and hospitality industry.

GARY J. MORRELL

Redwood has agreed a long-term management contract with Hard Rock International for the operation of the 136room hotel in Nagymező utca in District VI. The “life-style” hotel is located in a party hub in Budapest and reflects the growing sophistication of the Budapest hotel market and the perceived need for different models of hotel development in relation to demand.

Hotel operation is a completely different skill to office operation and therefore a management contract was agreed with Hard Rock International who will operate the hotel, according to Bálint Erdei, founder & CEO of Redwood.

This is the first such contract with Hard Rock Hotel in Europe. The

EUR 55plusmillion

Hard Rock Hotel Budapest has been financed by a combination of equity and bank finance.

The 10,000 sqm complex was designed by the Hungarian architects Studio’100

end of

2022.

Budapest, with a 75%-plus share of this pipeline, is the primary destination for hoteliers.

CBRE have traced a development pipeline of 3,340 hotel rooms across 27 hotels in Hungary due to complete by the end of 2022. Budapest, with a 75%-plus share of this pipeline, is the primary destination for hoteliers.

Építészeti Kft., with the interior work by the Barcelona-based Lázaro Rosa-Violán Studio.

Bálint Erdei argues that the hotel creates an environment that is currently lacking in Budapest with there being a lack of lifestyle hotels in the city. He anticipates a combination of tourists and a strong local customer base from Budapest that will make use of the hospitality facilities at the hotel as a life-style hub.

The complex includes a Sessions Bistro with a capacity for 80 guests and the Roxy rooftop lounge with a 150 guest capacity.

Hard Rock Hotel Budapest

Strong Potential

Developers, investors and hotel operators have seen strong potential for hotel development against the background of rising tourism indicators and demand indicators in recent years.

A number of hotel projects in Budapest and wider Hungary are ongoing and the

hotel sector has attracted developers and investors from the more traditional commercial property sectors seeking long-term partnerships with hotel operators for the day-to-day operation of the buildings.

However, the hotel and the hospitality sector has been severely hit by the coronavirus with the impact of the crisis on both tourism and international business travel.

Restriction Period Extended, Plus Chinese, Russian and Hungarian Vaccine News Hungary is extending the period its evening curfew and other restrictions will be in force to contain the spread of the coronavirus for another month, until January 11, Prime Minister Viktor Orbán said on his Facebook page December 7.

NICHOLAS PONGRATZ

Orbán said epidemiological experts, professors and scientists with whom he had consulted had “uniformly” recommended keeping the restrictions, which had been set to expire on December 11, in place.

The decision to go with that advice was taken by the Operative Corps, the body

coordinating Hungary’s response to the pandemic, early on Monday, he said.

An exception to the curfew, which runs between 8 p.m. and 5 a.m., could be made for Christmas Eve, but a decision on the matter will not be taken until December 21, the PM said. No exception will be made for New Year’s Eve, however.

Hungary will get documentation on a Chinese COVID-19 vaccine within days, State Secretary Tamás Menczer said in his own message posted on Facebook on

December

5.

Hungary is in contact with three Chinese vaccine makers: two privately-owned and one state-owned, Menczer said. The state-owned company is at a more advanced stage and plans mass immunization this year, he added.

Hungary could consider purchasing the vaccine after a study of the documentation by experts at the National Institute of Pharmacy and Nutrition (OGYEI), Menczer said. The National Public Health Center (NKK) will also weigh in on the matter, he added.

Sputnik Trials?

Hungary is also weighing whether to participate in clinical trials of Russia’s

However, this delivery schedule needs to be revised downwards with a significant proportion of projects slipping back. Further, several projects have been put on hold with no new delivery dates announced. That said, the pipeline remains strong and investment discussions are expected to restart, increasing the potential for next year.

Bálint Erdei sees a slow recovery from the second half of 2021 with a potential 50-60% occupation rate at Hard Rock Hotel Budapest by 2022, moving upwards to a projected 70-75% occupation rate by 2023.

Coronavirus ///roundup

Sputnik V COVID-19 vaccine, Minister for Human Capacities Miklós Kásler said December 7, according to telex.hu.

Between 3,000 and 5,000 Hungarians could participate in the trial, Kásler said.

A delegation of Hungarian experts who visited Russia a week earlier have reported that Sputnik V’s development is “taking place in line with conditions prescribed by the WHO,” he added.

Kásler said the delegation that travelled to Russia included experts from the National Institute of Pharmacy and Nutrition (OGYEI), a virologist of the National Public Health Center (NKK), and doctors from the Korányi National Institute of Pulmonology and vaccine maker Fluart.

The delegation visited the laboratory supplying the Sputnik V vaccine and the clinic where

22,000 people

have been inoculated so far, he added. He said Russians who get the vaccine remain at the clinic for observation for a few hours before returning home where they remain in video contact with one of 300 doctors who check in on their condition every day.

Registration for vaccination against the novel coronavirus in Hungary has started on the website vakcinainfo.gov.hu, the country’s chief medical officer Dr. Cecília Müller said on December 8, according to state news agency MTI. Müller said registration involves providing one’s name, address, health insurance number, telephone number and e-mail address.

The contact information will be used to inform those who register where and when they can be vaccinated, she added. The registration aims to gauge demand for the vaccine, she said. It will not be administered on a first-come, first-served basis, rather healthcare and other frontline workers along with Hungarians with chronic illnesses will have priority, she added.

Hungary’s government has said it will make COVID-19 vaccine available to anybody who wants it free of charge. The country is in talks with vaccine producers in Russia, China and Israel, and has signed up for the European Union’s joint vaccine orders. Müller said Hungary has pre-ordered 17.5 million doses of vaccine from various producers, but she added that people would not get a choice of which vaccine they would be inoculated with.

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Budapest Business Journal | December 11, 2020 – January 14, 2021

WHO’S NEWS

News | 5

Do you know someone on the move? /// Send information to news@bbj.hu

JLL Hungary Appoints Tuza Head of Capital Markets JLL Hungary has announced the appointment of Rita Tuza as the new head of its capital markets team following the departure of Benjamin Perez-Ellischewitz. Tuza took over responsibilities for the role from mid-November.

Rita Tuza She has been working for JLL for 10 years, but has 14 years of experience in the commercial property markets, and is a member of RICS. During the past few years, Tuza played a key role at JLL in the successful closing of the landmark transactions of Eiffel Square, Luxus Department Store, M0 Sziget Logistics Park, ProLogis Park Hegyeshalom, Office Garden I, Infopark D, Budapest 360 and Mammut Shopping Center.

In addition, Gábor Zeller, who joined JLL in 2015, is promoted to director level within the company’s capital markets team. The company says Zeller played a pivotal role during the transactions of Mammut Shopping Center,

Millennium Towers, Népliget Center, BSR Center, and the Siemens Campus.

Tuza comments, “During my time at JLL, I had the privilege to learn from the best professionals in the industry and participate at several landmark investment transactions. I’m excited to take charge of the capital markets department from Benjamin, who led by example. I hope that our team will achieve similar successes under my leadership as it did under his.”

Ferenc Furulyás, managing director of JLL in Hungary & SEE adds, “We are pleased to welcome Rita among our team leaders. JLL is devoted to support gender diversity, therefore, I’m delighted to see her growing within our organization. She has a strong experience in the field of property sales and acquisitions and an intimate knowledge of the market. Rita, with the support of Gábor, will lead our efforts on the market going forward. I wish Ben all the best in his new venture and thank him for his high level of professionalism and exemplary lead of the capital markets team over the last 10 years.”

Operator of Hungarian McDonald’s Restaurants Names HR Head

Andrea Horváth took over as head of HR at Progress Étteremhálózat Kft., the operator of McDonald’s restaurants in Hungary in September.

Horváth is now responsible for strategically supporting the restaurant chain’s dynamic development and expansion plans, providing HR consulting for the company’s franchise partners, and managing the Career Center, which coordinates recruitment processes.

She graduated from the Budapest Business School with a degree in HR, gaining hands-on experience at international companies such as Mars and Coca-Cola, where she was a talent development specialist.

She joined the Hungarian McDonald’s team in March 2017; in her first year as

talents. For me, there is no doubt that Andrea’s professionalism, experience, and further development will be an important component of our common success in the years to come, elevating the McDonald’s brand and the McD’s experience to an even higher level for our staff and guests.”

Business Developer Appointed at CTP

Andrea Horváth an HR business partner, her job was to support restaurants run by the company, while also providing coaching.

In April 2018, she was assigned to lead the Career Center and, in October 2018, she was named senior HR business partner. She was appointed HR manager in March 2020.

“I believe in people-centeredness, and talent development,” notes Horváth.

“As one of the largest employers in the country, we have a prominent role in training and developing our employees.

As head of HR, my goal is to implement new directions in addition to our already well-functioning programs that will help us better adapt to the ever-changing environment, as well as effectively contribute to the professional and personal development of our colleagues.”

This year, she also took part in the “Future Leaders” talent program of the Business Council for Sustainable Development in Hungary.

Zsolt Égi, managing director of Progress Étteremhálózat Kft. says, “I am proud that we have found the most suitable candidate to lead the HR field as a key corporate function among our own

András Kiss joined the Hungarian team of the Dutch based full-service commercial real estate developer and manager CTP as a business developer this November, the company tells the Budapest Business Journal.

Kiss came from CBRE, where he worked as a property advisor in the industrial and logistic sectors; he also has extensive experience in sales. In his new position at CTP, he is responsible for the leasing of existing and underdevelopment properties, acquiring new sites and buildings, and also maintaining tenant relationships.

András Kiss “I am delighted to be able to join a company that is developing at such a dynamic pace and that I can participate in the logistics real estate transactions of the upcoming, challenging period,” Kiss said.

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Business

Hungary Striving to Meet Climate Targets, Energy Security Thru Diversity Hungary has made significant progress in diversifying its energy sources and is investing heavily in, and modernizing and expanding, its energy infrastructure both for its own security and to meet European Union energy targets, Péter Szijjártó, Minister of Foreign Affairs and Trade, told the third Budapest Energy Summit in his keynote address on December 1.

KESTER EDDY

“For the first time ever, LNG [Liquified Natural Gas] will be part of our national energy mix from next year onwards [when], as of the 1 January, the LNG port in Krk, Croatia, will be operational,” he said to illustrate his point.

Hungarian companies have contracted to take an annual one billion cubic meters (bcm) of pipeline capacity, constituting the “first ever non-Russian, long-term, gas-supply contract,

Reservations

Energy Commissioner Kadri Simson. Photo by European Commission this time with Shell,” he said, adding, “We are certain that this 1 bcm of LNG gas will contribute a lot to our energy security.”

In addition, work has started on the construction of a 15 km-long pipeline to Serbia in order to link up with “the southern gas corridor through which gas from Azerbaijan and central Asia, and LNG gas from Greece can be added to our energy mix,” Szijjártó noted.

In the electricity sector, preparatory work for Hungary’s second nuclear power plant, at Paks, an hour’s drive south of Budapest, has been “going on pretty well.”

“We consider nuclear as a safe, clean and effective way of generating energy. We do not accept the position which puts nuclear in a negatively discriminated position. We think that level-playing fields should be ensured for nuclear energy as well,” he reasoned.

Impossible Task

Moreover, he argued that without nuclear power it will be “absolutely impossible” to meet the targets regarding the reduction of CO2 emissions, to which Hungary is “definitely committed.”

Subsequent speakers largely backed the minister’s arguments. William Magwood, director-general of the OECD’s Nuclear Energy Agency, while welcoming the growth of what he termed “variable renewable energy”, warned that the performance characteristics of both wind and solar mean that expensive generating equipment still has to be ready to make up for any unexpected shortfalls in power.

This has costs which are often overlooked and not properly accounted for against the renewable assets, he said, in effect, biasing the case for renewables.

European Union Will not let Pandemic Derail Carbon-Neutral Schedule The COVID-19 pandemic cannot be allowed to hinder the European Union’s plans for a carbon-neutral continent by 2050; indeed, it makes the target an even more important priority in order to protect both jobs and environment and maintain competitiveness within the Union, Kadri Simson, European Commissioner for Energy, reminded the summit in the second presentation of the day.

“If some thought that the global pandemic might distract us from addressing the climate challenge or to put it into question, this has not happened, not in the Commission nor outside it. Quite the contrary:

He noted Hungary accounts for these costs, which could in part explain the case for the expansion of Paks.

Dmitry Khandoga, head of the International Business Department at Gazprom, the Russian energy company, termed Hungary as “one of the key energy markets of east-central Europe which determines the energy well-being of the whole region” with a “promising outlook” for energy cooperation.

Gazprom, as a long-term, reliable partner, had agreed with Hungary on “a road map focused on the development of Hungary’s gas transmission system,” he said, including a non-binding capacity-demand assessment for the Serbia-Hungary pipeline currently under construction.

“The development of this project will diversify transmission routes, and increase the security of gas supply first of all in Hungary, and in the whole region,” Khandoga said.

it has made us focus even harder,” Estonia’s former economy minister told attendees.

Noting that it was almost exactly one year since European Commission President Ursula von der Leyen had presented the “bold and ambitious” decarbonization goals, she praised Hungary for showing “remarkable foresight and conviction” by being the first country in the Union to ratify the Paris agreement and for passing legislation quickly to bring the country in line to meet the climate targets.

Since the energy sector accounts for 75% of the EU’s greenhouse gas emissions, the European Union understands that without fundamental

changes to how states produce, transport and use energy, getting to a net-zero position “is impossible”, she said. Furthermore, many of the technologies needed to meet the goals still require further development.

Clearly, such a broad transformation of the sector needs massive investments, which the EU has put “at the heart” of both the next EU budget and the EUR 750 billion recovery package, thereby creating the “biggest EU budget in history geared to modernize our economy through a digital and green transformation,” she said.

In practice, this means that 30% of all EU funds should go to climate-

Some had reservations, however. Despite being generally optimistic about the future for savvy players, Gergely Szabó, regional chairman of MET Central Europe, a Swissbased energy group with Hungarian roots, cautioned that the investment required to meet carbon-neutral goals had not been fully thought through.

“We are not just talking about new solutions here, we are talking about a fundamentally changed industry of the future that needs a lot of investment, capex and effort from our side. I believe, we believe that we are constantly underestimating the cost of this,” he said.

Kurt Donnelly, of the U.S. State Department’s Bureau of Energy Resources had an even starker warning regarding the risks to energy security posed by the region’s largest supplier of natural gas.

“Often times people, and speakers, even here today, have talked about how reliable the supply of Gazprom has been through the years, but I think you wouldn’t find that same response from the people of Ukraine, where Gazprom has shut off the gas supply for political reasons, in 2006, 2009 and again in 2014 and 2018,” he said.

Indeed, for Donnelly, the public relations talk from the Moscow-based energy group is dangerously deceptive.

“This is not a reliable energy supplier, this is a company that responds to the political imperatives from the Kremlin, and uses energy to try to enforce this, and we see that still as an enormous vulnerability to energy security for our partners in Europe,” he argued.

related investment, including some EUR 250 bln from the recovery fund.

The EU’s energy strategy seeks to develop greater circularity to increase energy efficiency, to kick-start a massive increase in electrification, primarily based on renewables, and to promote the use of renewable and low-carbon gases like hydrogen in areas where electrification is too costly.

By investing thus, EU states will boost jobs, increase competitiveness and create cleaner, sustainable and better living conditions for their citizens, she said.

The commissioner concluded by emphasizing one major element often ignored in combatting climate change: the renovation of buildings, which are responsible for 40% of the EU’s energy use.

, T R A T S H S E R F

S N O I T U L O S T S E B , T E E L NEW F

ng i s a e L al n o i t a Oper g nt n e i c m n e a g n na a m Fleet fi & ns o i t u l o Fleet s tal n e r m r e t t r Sho budgethu

budgethu

budgetflotta.hu/en budgetflotta@budget.hu +36 1 700 4864 Fuel consumption: 1,6-1,4 l/100 km, CO2 emissions: 41-38 g/km, current consumption: 18,0-15,7 kWh/100 km.

An old companion for the long run

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Budapest Business Journal | December 11, 2020 – January 14, 2021

The Corporate Finance Column Graphic by ranjith ravindran / Shutterstock.com

Whatʼs in our Future, Inflation or Deflation?

Are we heading for inflation or deflation?

Corporate finance columnist Les Nemethy tries to read the runes to see in which direction the global economy might be headed.

Whether we live in inflationary or deflationary world has a massive impact for everyone. For savers, retirees or anyone planning retirement, inflation may greatly diminish any income stream not indexed to inflation.

Investors in long-term bonds will see significant bond appreciation under a deflationary scenario, but lose much of their investment in an inflationary scenario.

Borrowers in an inflationary environment, meanwhile, may repay in inflated currency, meaning they generate a windfall from lenders

So inflation or deflation in the coming years is one of the great financial questions of our time. And there is far from agreement among economists.

Economists seldom agree on anything, but here there are such strong forces at play, in both directions.

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This article examines some of the main inflationary and deflationary forces at play; how these forces may play out over the coming years; and ventures an opinion as to which is likelier to prevail over a threeto-five-year time horizon.

Forces at Play

First, on the deflationary side, there has, over the past decades, been a huge deflationary benefit from outsourcing and globalization. Bringing hundreds of millions of (mostly) inexpensive workers Asian into the global workforce has created a windfall for North American and European consumers. China became the factory of the world, and flooded the world with cheap products.

Record levels of global indebtedness (currently around 330% of global GDP) also constitutes a deflationary force. People and companies have less disposable income when they are in debt. COVID-19 lockdowns have created a demand shock.

Even without lockdowns, COVID creates a propensity to save.

An expected increase in defaults and bankruptcies further reduces demand, while energy prices have moderated over the past decade. Demographics also comes into play; an aging population diminishes spending. The same can be said of wealth concentration and, finally, technology allows for greater efficiencies and cost reductions.

On the inflationary side, there have been massive increases in money supply, which has already helped fuel an asset bubble.

Fiscal stimulus (so-called “helicopter money”) augments spending and inflation.

There have been supply shocks, stemming from a combination of factory closures due to COVID. When demand comes back, supply in various sectors will have shrunk, creating inflationary pressures. To manage political risks and possible trade disruptions, multinationals are diversifying their supply chains, bringing them closer to home (a process known as “insourcing”). This comes at a cost, in other words, it may have an inflationary effect. Finally, on this side of the argument, tax reductions, intended in part as COVID relief, also contribute to inflation.

What is Trending?

How might these forces play out over the coming years? I classify the above trends into three categories: Trends towards future deflation.

There is not that much more room for tax reductions; in fact, there may be a need for tax increases, at least postCOVID, to cover deficit spending. The incoming Biden regime in the United States is likely to increase taxes on the rich. This is deflationary; aging population and technology savings will also remain deflationary.

Trends difficult to forecast. It is uncertain whether wealth concentration can be reversed. It is also difficult to forecast whether energy prices will continue to diminish. We could, for example, see increases in oil and gas prices, at least over short periods.

Trends towards future inflation. The expansion of money supply has rapidly accelerated during COVID, while fiscal stimulus and deficit spending have expanded exponentially over the past year. This has not yet translated into inflation, because the velocity of money (e.g. the rate at which people spend) has collapsed. By approximately Q3 2021, we are likely to see a dramatic reduction in COVID infection rates, thanks to vaccines, which could increase spending and consumer confidence. That, in turn, may speed up velocity and, in conjunction with unprecedented levels of fiscal and monetary stimulus, hence trigger inflation.

Inflation or deflation?

If I were a betting man, I would bet on the resumption and strengthening of inflation.

So, why hasn’t there been inflation, despite massive money printing since the Lehman crisis? Most of the increased money supply found its way onto bank balance sheets, without stimulating an increase in consumer or corporate lending.

Hence, the increased money supply was “sterilized” within the banks. 2021 is likely to be different: the monetary stimulus is several order of magnitudes larger, accompanied by enormous fiscal stimulus (helicopter money), which goes directly into the hands of businesses and consumers.

While there are still strong deflationary forces at play, in my view, what will tip the balance towards inflation is the stated policy of central banks to do “whatever it takes” to float the economy. Central banks see deflation as a larger threat than inflation. We already have asset inflation; be prepared for consumer price inflation.

Les Nemethy is a former World Banker, CEO of Euro-Phoenix Financial Advisers Ltd. (www. europhoenix.com), a Central European corporate finance firm, author of Business Exit Planning (www.businessexitplanningbook. com) and a former president of the American Chamber of Commerce in Hungary.

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Millennium Gardens Offers the new Best View of Budapest TriGranit’s latest development in Hungary, the Millennium Gardens, the final element of the two-time FIABCI Awardwinning Millennium City Center, is a true specialty on the Budapest real estate market: it is situated by the Danube in a well-known cultural neighborhood next to a uniquely maintained green area with a 1.5 km promenade.

Stunning location at the Danube with a unique design There are plenty of opportunities for relaxation, leisure, recreation and entertainment, including the adjacent Palace of Arts (Müpa), the National Theater, and the nearby Budapest Park, which is Europe’s biggest open-air entertainment center. With its modern architecture, the two-winged complex was exclusively designed to suit a uniquely located site in an outstanding neighborhood and with spectacular views of Buda on the other side of the Danube.

The various design solutions support both natural shading and comfort, in accordance with the building’s energyefficient operation.

Opening in Q4 2021 The shell and core of the class “A” office building was completed in November

Millennium Gardens exterior and the first tenants can move in after completion in the fourth quarter of 2021. Millennium Gardens will offer around 37,000 square meters of office space and more than 500 parking spaces, focusing on the current needs of employees and tenants.

Adapting to the needs of potential tenants and millennials working at the complex in line with sustainability Adapting to the newest city utilization trends as well as the needs of millennials working at the complex, the 10-story Class “A” office building will offer secure parking facilities for more than 200 bicycles together with changing rooms equipped with eco-showers. Additionally, the office complex will have electric car chargers, facilitating environmental awareness. The spacious garden on the ground floor will promote recreation

and a healthy work-life balance as well as functioning as an alternative location for work, a public space, a meeting point and a place for people working in the building to have lunch. Alongside various retail and service units, the office complex will also accommodate a premium restaurant catering for as many as 300 people coming from the upper floors and nearby offices. With its summer terrace and beautiful views of Buda throughout the year, the restaurant will also offer fine opportunities for after work dinners or a drinks before the theater or a concert at the Palace of Arts. The building has a sustainable design, in keeping with TriGranit’s commitment to sustainability and modern architectural solutions and in line with its BREEAM “Excellent” certification requirements.

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everyday tasks even during the day. After almost 20 years of intense rehabilitation work, the area has become a popular, safe and comfortable residential, office and cultural urban quarter. And there is still space for further projects in the vicinity of the current project, for mixed-use, residential or institutional developments.

TriGranit, the developer of Millennium Gardens TriGranit, part of the Revetas Group, is a unique real estate development platform in Central Europe with an unrivalled track-record of developing prime and sustainable real-estate projects into the definitive landmarks of the region. In its two decades of operation, TriGranit has developed nearly 50 landmark projects, thereby creating 1.7 million square meters of GLA in seven CEE countries and winning more than 50 highly prestigious international awards.

The company’s primary focus is on Poland and Hungary, the countries with the best economic forecasts in the region. With offices in Budapest, Warsaw and Krakow, the TriGranit team of highly talented real estate professionals with deep local expertise seeks daily to provide the best possible solutions for its clients and partners throughout Central Europe. Sustainability is a fundamental element in TriGranit’s core strategy; all TriGranit office building complexes meet BREEAM or LEED quality standards. Besides Millennium Gardens in Budapest, TriGranit is currently active in Poland: after the opening of the eighth building in the B4B office development in Krakow, the company will enhance the asset by adding two further office buildings in the near future. Also in Poland, the Silesia for Business office building in Katowice with 26,000 sqm GLA is being developed. With these projects, TriGranit now has in the pipeline nearly 100,000 sqm GLA of office space in three cities in the region. Each of these projects embodies TriGranit’s philosophy of acquiring large sites and then developing them in various stages in line with market needs, thus creating multifunctional urban centers.

Location! Location! Location!

The location of the office building is excellent in terms of both private and public transport, with four tram lines, several bus routes, two suburban railway lines and even several riverboat piers.

Consequently, the city center of Budapest can be reached within 15 minutes, and commuters coming to the complex have a wide range of transport options.

Moreover, the suburban railway lines around the building will be developed and connected to the Metro line 4 in the forthcoming years.

City in the City Over the past decade, the Millennium City Center, which includes the new office building, has become a true city within the city. Nearby facilities include cafés, restaurants and bistros, a kindergarten, fitness centers and even a health center.

Thanks to the various services in the neighborhood, people working at the Millennium Towers, currently under construction. Millennium City Center can arrange

Should you decide to see the breathtaking view yourself, please contact TriGranit’s Leasing Manager, Makk Károly Dömötör at +36 20 950 2585 alternatively via email at DMakk@trigranit.com

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Budapest Business Journal | December 11, 2020 – January 14, 2021

HIPA-AmCham Co-host BSC Conference, Awards The Business Services Sector Hungary project of the American Chamber of Commerce in Hungary was the joint organizer of this year’s Hungarian Investment Promotion Agency Business Services Hungary 2020 conference and award ceremony, held online due to the pandemic.

Once again, a comprehensive survey with the participation of 67 companies was conducted among BSCs, the result of which was the focus of the main presentations.

VIVIEN CSERNIK-TIHN

The event was opened by Minister for Foreign Affairs and Trade Péter Szijjártó, who spokes about the current state of the economy and the protective measures that have been taken thus far by the government.

“Currently there are 131 business service centers in Hungary, they provide jobs for 63,892 people, and this number has increased by 40% during the last three years,” Szijjártó said.

“These companies demand a highly qualified workforce and, through the investments of these companies, Hungary became a leading destination for shared service centers in the Central European region.

“This sector plays a key role in keeping talented young Hungarian people home, with considerable salaries, rapid promotion opportunities and the daily use of foreign languages,” the minister added.

AmCham Hungary CEO Írisz LippaiNagy, who welcomed the audience with HIPA CEO Róbert Ésik as they introduced the results of this year’s survey, said: “If you want to go fast, go alone. If you want to go far, go together. Cooperation: It could be the motto of this year’s conference and for me this is the key word for 2020 itself.”

Trends and Tendencies

In the second part of the online conference, the future of BSCs were discussed by assessing the opportunities, trends and tendencies of the sector in Hungary. Attila Bognár, McKinsey & Company partner introduced this year’s global trends and regional responses to the pandemic.

Following that, Randstad managing director Sándor Baja and operations manager Petra Polgár elaborated on the “new normal” in HR trends and winning strategies.

The BSC sector has remained stable and is performing well in these challenging times. New opportunities also arise from the pandemic situation as companies move towards a hybrid operational model combining on-site and remote working, allowing more talent recruitment from Hungary’s regional university cities, the experts said.

Finally, CBRE’s research director Gábor Borbély reflected on the opportunities in the office market during these turbulent times. It can be seen that the business service sector has re-thought office space, there is a new balance between remote working and office-based work.

These factors will also have an impact on the future of cities and property: these tendencies imply changes in the residential market as homes must accommodate workspaces and connected infrastructure, but do not necessarily need to be in central locations or well connected.

The online conference concluded with HIPA’s annual BSC awards ceremony: Center of Excellence of the Year was won

by ExxonMobil; BSC Manager of the Year was Eve Bader (Roche); Best in Educational Cooperation was awarded to NI Hungary.

Text courtesy of AmCham Hungary, photo courtesy of HIPA.

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Special Report Virus Infects M&A Market but Healing Starts

Photo by PanyaStudio / Shutterstock.com

Deals of the Year 12

Purchase and Lease of Luxury Hotel Portfolio, Including Budapest 13 Real Estate Deals Concluded Despite Pandemic

15

M&A in the Pandemic

17

2020 Vision: We take a look back at some of the M&A and real estate deals of what has been an extraordinary year.

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Special Report

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Budapest Business Journal | December 11, 2020 – January 14, 2021

While the second quarter of the year saw a significant slowdown on Hungary’s transactions market, vital signs started to become visible again following a slow summer period. The impact of the COVID19 pandemic, however, is likely here to stay for a while yet.

ZSÓFIA CZIFRA

One of the areas that suffered most from the COVID-19 pandemic has been the mergers and acquisitions market, although in fairness it was already showing signs of weakness before the novel coronavirus disease appeared at the beginning of 2020.

Although the current situation of the market is likely to be temporary, it is all

Photo by Faizal Ramli / Shutterstock.com

Virus Infects M&A Market, but Healing Starts

the more devastating, as M&A transactions have been, for more than a quarter of a century, the engines of globalization and international capital flow. The majority of the biggest deals have fallen through in the few months and, for the most part of the year, the M&A market has been adopting a wait-and-see attitude.

Global M&A activity reflects this year’s economic trends that have greatly been influenced by the pandemic and the health and economic crises it triggered. While transactions in the technology, food and drink, and life science industries will still lead the way,

M&A activity in sectors that have been drastically hit by the crisis is likely to catch up soon, as stated in the study “Global M&A in 2020: Impact of COVID19”, released by law and advisory firm DLA Piper.

M&A

In Hungary, there was a significant slowdown in the second quarter of the year, DLA Piper Hungary partner Gábor Molnár says, commenting on the study’s findings. Many companies has been focusing on survival rather than expansion; however, the market in

Auto Wallis has continued to expand. File photo shows senior officers and partners with Richard Végh, BSE president and CEO of Budapest Stock Exchange (far right).

Hungary definitely got a boost in early fall, following a near standstill in spring and a slow summer.

According to Molnár, in many cases, negotiations have now restarted on previously delayed transactions. Sectors that are expected to liven up in the foreseeable future include those that had been hit hardest by the crisis, such as hospitality, retail and leisure.

Real estate and construction still remained the most active sector in the Hungarian M&A market, followed by telecoms and IT, with manufacturing the third most active in the past 12 months up to April.

July 2021 will likely to be a milestone, says Molnár. That is when loan moratoriums will fully expire and that is when we will get a clearer picture of how much trouble companies exposed to the pandemic have fallen into, and the size of non-performing loan portfolios at banks, he explained.

The second half of next year will also show how many forced deals will occur and how it will affect the Hungarian M&A market, adds Áron Kovaloczy, managing director of DLA Piper Business Advisory Kft. Next summer will bring at least one other area of excitement: that is when the European Union’s Restructuring Directive will be implemented in Hungary, Kovaloczy highlights. The

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Budapest Business Journal | December 11, 2020 – January 14, 2021

According to a fresh report by the Hungarian Venture Capital and Private Equity Association, VC and PE transactions in Hungary came to HUF 9.5 billion in the first half of 2020, down by around 50% from the same period of last year.

Both the number of deals and the total deal value in Hungary appeared to decrease in the past

12

months;

however, the average deal value rose, according to a report released by the Oppenheim Law Firm in April of this year.

As for the trends, the report states that while the number of deals in the telecoms and IT sector increased, the total number of transactions in the real estate and construction sector decreased.

Nevertheless, real estate and construction still remained the most active sector in the Hungarian M&A market, followed by telecoms and IT, with manufacturing the third most active in the past 12 months up to April.

The largest and most significant deals were dominated by domestic investors rather than foreign players, the report adds.

be tied to nine funds. Most exits were registered in the business and industrial services sector, and also in the consumer services sector. One interesting fact worth noting: in the companies sold, investors had been acting as owners for an average of

6.4 years.

The negative effects of the pandemic became visible in the second quarter of the year: the number of transactions fell noticeably, especially in the case of cross-border deals. Hungary, like several other countries, introduced more rigorous rules on controlling foreign direct investments, which obviously didn’t help.

However, the market will probably adjust to the new situation, and several sectors might become even winners, such as IT, healthcare, or digital financial solutions, said Ákos Bajorfi, head of corporate/ private equity group at Noerr & Társai.

Finance

Although, as said, the markets were suffering from the impacts of the pandemic, there were still some significant deals in several sectors. In finance, the most notable was the formation of a bank holding in Hungary: state-owned Budapest Bank and MKB Bank and savings group Takarékbank (MTB) signed a deal to form Hungary’s second-largest banking group at the end of October.

VC and PE

Venture capital and private equity weren’t spared by the crisis either. According to a fresh report by the Hungarian Venture Capital and Private Equity Association (HVCA), VC and PE transactions in Hungary came to HUF 9.5 billion in the first half of 2020, down by around 50% from the same period of last year.

There was, obviously a descending trend in the number of transactions as well: there were a total of 63 transactions in H1, including 47 incubation and seed investments, HVCA said. During the same period of 2019, 99 transactions were realized.

In H1 2020, the average transaction size was HUF 151 million, down by around 30% from a year earlier.

Most of the investments were in the business and industrial services and products sectors, IT and consumer electronics, and in communications: 79% of the total invested amount were spent on the above mentioned areas.

Unlike in previous years, there were no investments in the energetics and environmental sectors.

HVCA said 33 exits took place during the first half of the year, which can

OTP head Sándor Csányi has overseen the sale of banks where market penetration is limited, but acquisitions in more promising countries.

The deal was widely anticipated as the three banks had announced a strategic alliance back in May. As Reuters commented on the announcement, it marked a new chapter “in the shake-up of a banking system that has seen local players gain influence under nationalist Prime Minister Viktor Orbán.”

With the deal signed, the state will have a

30.35% stake

in the new group, to be called Magyar Bankholding. The owners of MKB Bank will hold 31.96% and Takarékbank will have 37.69%. The value of the new banking group will exceed HUF 740 bln (USD 2.35 bln).

Although the new setup will definitely reshape the Hungarian banking sector,

INSIDE VIEW

Purchase and Lease of Luxury Hotel Portfolio Including 2 Iconic Budapest Buildings Dr. Kinga Hetényi

Dr. László Krüpl

Managing partner

Head of real estate – Hungary

SCHOENHERR HETÉNYI ATTORNEYS AT LAW

SCHOENHERR HETÉNYI ATTORNEYS AT LAW

In the last few years, hotel companies have started to separate their hotel business from the real estate holdings to offer the latter to financial investors. This generates immediate cash income for re-investment and allows them to focus exclusively on the operational side and realize higher returns.

The Hungarian angle of the transaction concerned two hotels: New York Palace was constructed in 1894 by the New York Life Insurance Company as a local head office, with the iconic New York Café on its ground floor, which became a famous meeting place for Hungarian literature.

New York Residence was opened in 2011 and has won several awards following in the footsteps of its landmark parent property.

According to the parties’ commercial agreement Värde and Partners undertook to restructure the hotel companies into an OpCo-PropCo structure. Besides the so-called front SPA concluded with Värde and Partners, Covivio agreed with NH, a well-known hotel operator in a separately agreed B2B transaction, to lease out and rebrand the hotels.

Schoenherr provided full transactional support to Covivio in relation to the New York Palace and While the number of transactions has New York Residence Hotels in Budapest, decreased since the COVID-19 pandemic, as well as the Carlo IV in Prague for the there are still examples of them, and negotiations with Värde and Partners, Covivio Hotels is one of the best for an as well as NH. acquisition and forward lease in the Apart from the due diligence hotel sector. exercise, the transaction comprised Originally, the hotel business was the negotiation of the Front SPA and not an attractive sector for financial the B2B SPA. Furthermore, Schoenherr investors who often took the view advised on the carve-out of the hotel that hotel companies represented a business from the holdco structure and relatively risky investment given that the separation of the holdco structure there was a high cyclicality in the sector in a newly established special purpose and the market was fragmented with vehicle. Apart from this, a long-term many competitors. forward lease agreement and a project It was precisely in order to make the management agreement with NH were hospitality sector more attractive to also negotiated. Covivio hired Cushman financial investors, hotel companies & Wakefield to fulfil the property started to adopt a so-called OpComanagement tasks in relation to the PropCo structure, i.e. to separate their newly acquired assets. asset-light operation by spinning off Due to the COVID-19 pandemic, the real estate holdings into separate the Hungarian Parliament adopted entities. The subsequent sale of the measures to screen foreign investment. real estate holdings enables the hotel Therefore, the Hungarian Ministry for companies to exclusively focus on the Innovation and Technology had to be remaining operational side, to generate notified of the acquisition. Due to this, immediate cash and pay dividends, as well as the coronavirus itself, the to repurchase shares or to invest in transaction was successfully closed only operating new assets. in September 2020.

At the end of December 2019, the Schoenherr’s Hungarian team Minneapolis-based global alternative consisted of the head of real estate & investment firm Värde and Partners construction Laszlo Krupl, partner Kinga agreed in a definite agreement to sell Hetenyi, attorney-at-law Daniel Varga, to Covivio Hotels, a French real estate and associate Adrian Menczelesz, while investment trust, the Dedica Anthology the Czech team included partner Martin hotel portfolio. This comprised eight Kubanek, and attorneys-at-law Viktor luxury full-service independent hotels Pakosta, Eva Purgerova, and Jiri Marek. with an aggregate of more than 1,100 rooms located in main European cities, consisting of 5-star hotels such as Palazzo Naiadi (Rome), Grand Hotel Dei Dogi (Venice), New York Palace (Budapest), Carlo IV (Prague), Palazzo www.schoenherr.eu Gaddi (Florence) and Hotel Plaza (Nice).

NOTE: ALL ARTICLES MARKED INSIDE VIEW ARE PAID PROMOTIONAL CONTENT FOR WHICH THE BUDAPEST BUSINESS JOURNAL DOES NOT TAKE RESPONSIBILITY

directive is a key part of the EU’s wider Capital Markets Union Action Plan.

This seeks to introduce a minimum standard among EU member states for preventive restructuring frameworks available to debtors in financial difficulty and to provide measures to increase the efficiency of restructuring procedures. The directive was introduced on June 2019 and member states had a two-year period in which to implement it that will expire on July 17, 2021.

Special Report | 13

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Special Report

the market leader is still OTP Bank, which is basically also the biggest lender in Central Europe. The group was rather active this year: at the beginning of 2020, it announced the sale of its Slovakian unit to Belgian banking group KBC, a deal that was finalized in November.

KBC now owns 99.44% of the shares in OTP Banka Slovensko, and it plans to merge the Československá obchodná banka, a.s. (ČSOB) and OTP Banka Slovensko. In announcing the deal back in 2019, OTP head Sándor Csányi said that as the group “was unable to increase its market share to the optimum level (in Slovakia), management took the decision to sell this group member. This deal will enable our group to focus on markets where we can achieve a higher market share in the future,” he added.

Indeed, back in January, OTP Bank completed another acquisition in the region: it bought the Slovenian SKB Bank, becoming its 99.73% shareholder. This was OTP’s first investment in Slovenia.

Information Technology

The IT sector seems to be one of the winners of the pandemic, as with its spread, digital solutions have become increasingly important for both individuals and companies. In Hungary, there is one particular IT firm with a rather big appetite: listed company 4iG. CEO Gellért Jászai, who is said to be close to the government, became the

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Budapest Business Journal | December 11, 2020 – January 14, 2021

the shares of DTSM Kft. The latter’s activities range from the physical operation of data centers to the installation, operation and integration of IT and telecommunications systems to the construction and integration of cloud technologies.

One other notable transaction took place on the area of IT: in mid-November, tech giant Cisco announced its intent to acquire Hungarian startup Banzai Cloud, which specializes in cloud-native applications.

majority owner of the company. In January, he acquired stakes in 4iG from listed holding company Opus Global and private equity fund Konzum that would give him control

over

61.79%

of the business.

Last year, 4iG was in talks with T-Systems Hungary Kft., to acquire its bigger peer. That came to nothing in December last year, when the two parties announced the termination of talks. However, acquisitions did take place in 2020: in October, 4iG signed an agreement to buy a majority stake in INNObyte and its subsidiary Innoware Kft. A month later, 4iG said it had signed a sale agreement to acquire 100% of

Fall Activity

There was some reorganization on the logistics market as well. In October, Hungarian property developer Indotek Group announced that it would buy a 24% stake in Hungarian road haulage company Waberer’s from Mid Europa Partners. The latter also granted Indotek a call option over its remaining 47.99% stake in the hauler.

The transaction is expected to close by the end of

In finance, the most notable deal was the formation of a bank holding in Hungary: state-owned Budapest Bank and MKB Bank and savings group Takarékbank (MTB) signed a deal to form Hungary’s secondlargest banking group at the end of October.

Q1

2021.

Waberer’s has booked losses for several quarters.

Further proof that there was a livening transactions market developing in the fall came in an announcement by Hungary’s AutoWallis. The company completed the takeover of the largest BMW dealership in Slovenia in October. In taking over the only BMW dealership in Ljubljana, AutoWallis had also entered the country’s auto retail market, thus further

IT company 4iG has grown through acquisitions in 2020. strengthening its presence in the CEE region, the company said in a press release.

Only a few weeks after the BMW announcement, the listed auto retailer shed light on another expansion plan in Slovenia, announcing it had signed a preliminary agreement to acquire Slovenian car dealership, Avto Aktiv. This agreement still requires approval from the local competition office.

In September, another governmentally announced further expansions, this time in the food industry. Talentis Agro Zrt., which belongs to the Mészáros Group, controlled by billionaire investor and key ally of Prime Minister Viktor Orbán, made an irrevocable takeover bid for the purchase of Szarvasi Agrár Zrt., which also includes a number of other subsidiaries.

The main activities of the company are crop production, dairy cattle breeding, rice and grain processing, though it also provides agricultural services to smaller producers.

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Crisis Reshaping Market, Giving Birth to new Winners While much of society and the economy is groaning under the direct effects of the coronavirus, competition is slowly rearranging the market and new players may emerge in the new situation.

While social attention is, rightly, focused on the direct effects of the coronavirus, less attention is being paid to the reorganization of market competition in the midst of the economic crisis.

It is worth taking a closer look at the serious processes taking place in the economy, thus exploring further possibilities as well.

How a company is affected by the current situation largely depends on external factors, as well as on the capabilities and scope of activities of the business, its financial situation, suppliers and partners. These external factors

Change in GDP of the V4s compared to the same period of the previous year (%) 2020Q1

2020Q2

Czech Republic

-1.6

-10.8

Hungary

2.2

-13.6

Poland

1.9

-8.0

Slovakia

-3.6

-12.1 Source: Eurostat

have damaged domestic entrepreneurs very much, and some sectors have been hit much harder by the pandemic than others.

Entrepreneurs, however, have a number of tools to adapt to the changed market conditions. Adaptability and agility can be a major competitive advantage over competitors. Information is a particularly important shield in a crisis situation, and since deals are mostly entered into by enterprises, conscious management of company information is essential nowadays. There are businesses that cleverly take advantage of this situation, while others are less resourceful.

Sixty-eight percent of domestic companies reported supplier problems and disruptions

Hungary’s foreign trade product turnover in HUF, V4 countries (2019, at current prices, million HUF) Export

Import

Slovakia

1 863 182

1 671 874

Czech Republic

1 520 210

1 688 830

Poland

1 502 756

1 968 903

Altogether

4 886 149

5 329 607 Source: KSH

early in the first wave of the epidemic. A plethora of businesses were looking for new solutions to solve their supplier problems.

This situation was skillfully recognized by many entrepreneurs who were able to move forward in the market competition by mapping out potential customers and suppliers in a timely manner.

In addition, competition is already taking place at an international level, so it is worth examining the situation of domestic companies at the international level as well. There are interesting results visible if one compares nothing else but the performance of the Visegrád Four countries (the Czech Republic, Poland and Slovakia, in addition to Hungary).

The V4 account for 15% of Hungary’s foreign trade, so our trading activities with countries whose economic and regional situation is similar to ours is very significant.

It can be established that there is still potential to increase domestic exports to these countries. One of the cornerstones of doing so is market research and the mapping of potential partners in the given country, which is orientation using company information.

The pandemic hit Hungary hardest in the second quarter, with the momentum of

domestic economy decreasing the most. This also indicates that entrepreneurs looking for new customers during the coronavirus pandemic had a better chance of finding a customer in the other V4-countries than in Hungary. The situation is a good indication that agile entrepreneurs with a greater emphasis on international markets can gain an advantage during an emergency situation.

Similar export potential is visible when looking at the change in the foreign trade balance of the studied countries. The balance of the Polish and Slovak economies also improved, meaning that their exporters could better adapt to the deteriorating economic conditions.

Of course, export opportunities and export transactions depend on a number of factors, but one important step for export expansion and market research can be easily implemented. The mapping of potential international partners and the selection of international marketing lists are easily available to anyone in Hungary. From 2020, Opten can provide valuable help to businesses with this, as opten.eu, our international company information portal, has been launched. The portal provides access to data from three million businesses in seven countries with a few clicks, making the production of international marketing lists extremely convenient. Cross borders with Opten!

The trade balance of the V4-s (million EUR) 2020Q1

2020Q2

Czech Republic

4 153.4

2 211.1

Hungary

1 235.5

-151.3

Poland

7 392.8

9 060.4

Slovakia

-446.3

183.1 Source: Eurostat

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Budapest Business Journal | December 11, 2020 – January 14, 2021

Special Report | 15

Real Estate Deals Concluded Despite Pandemic Investment activity for the year has been negatively impacted by the coronavirus, although a recovery in the medium-term is expected as market fundamentals in, for example, office and industrial remain positive. Demand for investment assets far outweighs supply and deals are being concluded.

The conventional wisdom, however, is that there will not be a full recovery in investment market activity until at least next year.

GARY J. MORRELL

“Caution and prudence were the main drivers in the letting and investment market in 2020. Only a fraction of the deals have been realized as both investors and tenants have chosen to wait due to the great numbers of uncertainty factors,” says Mátyás Gereben, country manager at CPI Hungary.

“CPI’s estimation is that investment and letting activities will fully resume in the fourth quarter of 2021 in sectors such as office and logistics. Retail and hotel may differ,” he adds.

With strong demand fundamentals, office developers have been able to go forward with office projects with the confidence that preleases can be concluded, despite the growing use of home office. The retail and hotel sectors are in a more precarious position, due to the threat from ecommerce to the former, and COVID’s impact on tourism and business for the latter.

Office

GTC has completed the sale of its 30,500 sqm Spiral office development in the Váci Corridor. The successful disposal of the fully leased, single tenanted building, first delivered in 2008, will provide the funds for further development projects and acquisitions, according to the developer.

The deal was concluded amid uncertainty over pricing in the office market.

“That being said, if you have an exceptional product because of its prime

Váci Greens quality or a very long lease with a good covenant, core money is keen to secure such opportunities. Hungary has seen a significant supply of new offices this year, so there is potentially more product than on the Czech market,” says Rita Tuza, head of capital markets at JLL Hungary.

In another significant deal by a European investor, GalCap Europe, a real estate asset and investment manager specializing in Austria and Central Europe, acquired the earlier generation Rumbach Center for the portfolio of a German pension fund. Office has proved to be the asset sector of choice in CEE, closely followed by industrial according to Colliers International, who brokered this deal.

One more notable transaction was the purchase by Allianz of the Eiffel Square office complex, making it the largest office investment be a foreign investor

since

2016

according to CBRE. The 23,500 sqm complex was purchased in a deal structured off-market by JLL. Skanska has sold the 14,000 sqm Nordic Light Trio office building to JRAMC, a South Korean real estate investment trust making its first office investment in the CEE region.

“Due to the current economic uncertainty, most investors prefer a wait and see approach until the uncertainty will gradually decrease,” says Alexandra Tomášková, executive vice president of operations for Hungary & Czech Republic at Skanska commercial development CEE. “However, there is a lot of capital waiting to be deployed. Investment into real estate is a good investment even in the tougher market situation. We operate in strong markets with solid fundamentals, which Budapest no doubt is,” Tomášková adds.

Eston/Savills has assisted Adventum in the disposal of its earlier generation Margit Palace and Buda Square for

around EUR 85 million to the U.K.-based Resolution Property.

Colliers predicts the total Hungary investment volume turnover for 2020 will be close to just

below

EUR 1 billion.

Another two to three sizable transactions are expected to close by yearend, although other deals could slip into 2021.

In the current pandemic environment JLL has adjusted down its estimate of annual investment volume for Hungary to EUR 1.3 bln. CBRE argues that there is a lingering uncertainty as to how the COVID-19 situation will play out, although a late boost to the market could bring the annual Hungary investment volume for this year potentially into the EUR 1.2 bln-1.3 bln range.

In terms of sustainability, the Agora Budapest Project is certainly one of the most important projects in the Hungarian capita, according to Zsombor Barta, president of the Hungarian Green Building Council (HuGBC).

“The Project proved its holistic sustainability approach through multiple international certifications (BREEAM Communities, BREEAM NC, WELL) and the concept itself is also multifunctional, which again could be an important milestone for the District XIII, Árpád híd area,” he says.

Colliers put yields for prime Budapest office at 5.25%. The theoretical yield level relevant for prime Budapest offices is set to grow

to

5.5%

by the end of 2020 according to Bence Vécsey, director and head of capital markets at Colliers International.

The yield gap between Budapest and Warsaw and Prague remains at around 100-125 basis points according to JLL.

CBRE put prime office yields at 5.75%, shopping centers at 6.25%, high street retail at 5.75% and industrial at 7.25%.

One of the main contributions to the annual total is the purchase by the Hungarian Optimum Ventures Private Equity Fund Optima of a majority 61.5% stake in GTC through the acquisition of Lonestar’s shares in the GTC portfolio.

This includes both office complexes and shopping centers.

“However, there is a lot of capital waiting to be deployed. Investment into real estate is a good investment even in the tougher market situation. We operate in strong markets with solid fundamentals, which Budapest no doubt is.”

By the end of the third quarter, the largest transactions were portfolio sales; namely, the takeover of the Goodman logistics portfolio by GLP (more on this below) and the transfer of the majority of GTC’s shares to Optima. These two deals accounted for

nearly

40%

of the total volume registered so far in 2020 according to Eston International.

Outside of Hungary, Wing, one of the country’s biggest real estate developers/ investors has acquired a 66% majority stake in Poland’s Echo Investment, which has office, residential and retail projects. The

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Special Report

www.bbj.hu

Budapest Business Journal | December 11, 2020 – January 14, 2021

The Central Business Center, to be renovated and renamed the ZenGarden office building. aim is for Wing to become a key actor in the Central European region, according to chairman-CEO Noah Steinberg.

Office demand fell considerably as decision-makers tried to evaluate the medium-to long-term effects of the pandemic and to balance the need for keeping employees safe and their business running, according to Eston International.

There are clear signs of a re-evaluation of office requirements by tenants.

The two largest office preleases, by Vodafone and BT, totaling 22,000 sqm, were both signed for the second, 19,700 sqm phase of the WELL and BREEAM accredited Budapest One business park

by Futureal in District XI.

The 14,000 sqm Vodafone letting forms part of the integration of Vodafone Hungary and UPC and was “a great achievement in size, considering the uncertain circumstances during COVID,” comments CPI Property Group’s Gereben.

Elsewhere, Atenor closed one of the most significant office lettings of the year as a Hungarian IT company signed a deal for 7,450 sqm at Building E of its Váci Greens complex. The 23.500 sqm building itself has been sold to a Hungarian Investor, and the 20,700 sqm Building F is now under offer to investors.

“We have been witnessing a year when the very fundamentals of our business were questioned, whether offices are needed at all

or whether home office working is a lasting solution,” comments Csaba Zeley, head of asset management at ConvergenCE. “I am happy to see that, despite these current difficult circumstances, long-term office leases have been signed and deals closed, so our actual experience has been very different to all of the negativity in much of the media,” he continues.

“Although office vacancy is on the rise largely due to sub-letting, the foundations of the market have not been shaken. That is especially important for us, as two of our projects, Árpád Center and ZenGarden, were under-leased office buildings where this year we have successfully leased over 2,500 sqm in five transactions, taking occupancy over 95% and raising rents by 20-30% during the last 12 months,” Zeley adds.

Industrial

The industrial market is seen by many analysts as the sector in the most positive position for the post-coronavirus crisis and lockdown period. Continued low vacancy rates have led to high demand; however, due the lockdown, many speculative projects have been put on hold. A developer-led market has continued to be mainly limited to the Budapest area, and a functioning is yet to be established outside the capital.

In a notable transaction, GLP acquired the Goodman portfolio consisting of 157,000 sqm of space in two industrial parks, in addition to 17 hectares of development land.

Key leasing transactions include a 28,000 sqm prelease at CTPark Budapest South and 35,700 sqm at CTPark Budapest

East with Lenova. But these weren’t the only deals out there.

“Our most significant lease agreement this year was concluded with our longterm customer FIEGE in Prologis Park Budapest-Harbor,” says Paweł Sapek, senior vice president and regional head for Central Europe at Prologis.

“Hotels face extreme difficulties this year and the tourism sector is not expected to recover in the short-term. However, this may also present some opportunities for property owners and hotel operators as planned refurbishments may be carried out earlier.”

“FIEGE has signed three transactions for 38,600 sqm there, of which 19,600 sqm are new leases, including our new Building 11 totaling 14,000 sqm. With a total leased area in the park

of

59,000 sqm,

FIEGE has thus become the largest customer of Prologis in Hungary,” he explains.

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Budapest Business Journal | December 11, 2020 – January 14, 2021

Special Report | 17

INSIDE VIEW

Judit Jancsa-Pék Senior advisor, Partner LeitnerLeitner

Nordic Light Trio by Skanska.

“In terms of our investment activity in Hungary, we would highlight the acquisition of Prologis Park BudapestSziget II, a new, 13-hectare plot adjacent to our fully developed and leased Prologis Park Budapest-Sziget I. The new location has all the necessary building permits and development potential for two modern facilities totaling 60,000 sqm,” Sapek adds.

Hotel

In a major investment deal the five-star, 373-room New York Palace and Residence has been purchased by Covivo from Varde Partners.

In a redevelopment deal, InterContinental Hotels Group has signed a management agreement with Gránit Pólus Group for the 230-room hotel at Westend City Center, currently the Hilton Budapest City, to be re-branded as Crowne Plaza Budapest in 2021.

“We are confident that Crowne Plaza Budapest will become a vibrant hotspot for business travelers and tourists once the COVID-19 pandemic is resolved. In the spirit of this project, Gránit Pólus Group will dedicate more than EUR 10 million to renovate the hotel with its

230 rooms

in the following two years,” commented Miklós Gyertyánfy, asset management director of Gránit Pólus Group on the deal.

“Hotels face extreme difficulties this year and the tourism sector is not expected to recover in the short-term. However, this may also present some opportunities for

property owners and hotel operators as planned refurbishments may be carried out earlier. As such, the Hilton Hotel at Westend Shopping Center will become the Crowne Plaza Budapest, operated by IHG from the summer of 2021,” said Eston International on the hotel market.

Retail

Retail, along with hotel and hospitality, is seen by analysts as the most severely hit real estate sector by the COVID-19 pandemic and its potential aftermath.

Cushman & Wakefield put stock in Budapest at 770,000 sqm, with pipeline represented by one major shopping center development; the 55,000 sqm Etele Plaza by Futureal has a rescheduled handover of 2021.

The Danish household goods retailer, Jysk has signed a deal

for

1,600 sqm

at Campona CPI. “A huge win-win deal for both Jysk and Campona as the brand were able to satisfy a geographical gap with an optimum customer base and Campona gained an anchor position in a challenging part of the shopping center,” said CPI on the transaction.

“The Hungarian property investment market has had a great series of three record-level years, so a correction had been expected in advance. Today, we expect a 50% drop in investment volume comparing to 2019, but investors’ activity is picking up and funding still seems abundant,” concludes Eston International on prospects for the investment market.

Prologis Park Budapest-Harbor.

During the last six years of economic growth, the number of insolvency proceedings in Hungary has reduced. As a result of the coronavirus epidemic, however, the positive trend is likely to reverse from the second half of 2020 and even more so from 2021.

Similarly, group restructurings are expected to more often lead to the voluntary dissolution of unnecessary companies. In parallel, in the area of M&A, the world has slowed down; many deals have been terminated or postponed as parties struggle with new risks for valuation, availability of financing, business uncertainty and remote due diligence work.

However, buyers with strong capital positions may still see increased potential and the number of international restructurings and transfers of businesses rise, representing a means of international reorganization for multinationals.

Difficult financial situations will, sooner or later, lead to the need for insolvency proceedings or a decision to eliminate less effective business activities and close unnecessary companies within the group. During a major crisis, what is believed to be a stable businesses can also be shaken; supply chains are interrupted, access to credit becomes difficult and more expensive, renewable credit lines run out and many otherwise viable businesses may find themselves insolvent.

One of the most important tasks for policy makers in such times is to increase the resilience of viable businesses and give them a chance through domestic insolvency proceedings to stay alive. This gives special importance to the implementation of the EU Directive on restructuring and insolvency, expected in July 2021. Insolvency law should have effective procedures for reorganization, also for the liquidation of non-viable companies. In addition to this, a less formalized, highly flexible restructuring framework is

also essential for those enterprises which typically are outside the scope of formal insolvency proceedings.

Government measures such as the moratorium on loan repayments supporting liquidity can be a real help to businesses in difficulty. The cooperation of business parties in accepting payment delays and partial fulfilment is also important. However, it is certain that companies that were on the verge of insolvency even before the onset of the coronavirus had a negative impact on their operations will disappear from the economy.

However, all these processes require caution from a tax perspective. Tax audits during liquidations and voluntary disclosures play an important role in establishing the stability of the economy as a whole. Exit taxation and transfer pricing measures are effective lines of defense against aggressive profit shifting out of Hungary.

Companies should also be prepared for these mechanisms and increased tax authority attention.

In a post-pandemic word, a rush of previously terminated or postponed M&A deals is expected; due to the special circumstances, there are likely to be unrepeatable chances to acquire new markets, customers and valuable teams from competitors.

This, combined with the generation change due in many businesses now will shake this segment.

Such an environment raises unique considerations for parties contemplating an M&A transaction.

Special COVID considerations for M&A transactions consist, among other things, of understanding what steps a target has taken to mitigate against the adverse health effects of the coronavirus on its workforce and on employmentrelated diligence. Working from home can also have a material impact on employment-related taxes and withholdings, and raises potential tax exposure for conducting business in another jurisdiction. The review of amendments to material contracts and terms considering the pandemic might affect future enforcement, defenses against contract breaches, and the consequences of termination. The ability to fulfil contractual obligations and the performance potential of the other party should also be monitored closely as an area for further litigation.

LeitnerLeitner is one of the most influential tax consulting, accounting and auditing companies in Central Europe, with tested cooperation all over the World. As M&A is a key area of specialization for us, with the help of our experts you can prepare the transition of your company or we can find a sustainable financial solution for your situation.

NOTE: ALL ARTICLES MARKED INSIDE VIEW ARE PAID PROMOTIONAL CONTENT FOR WHICH THE BUDAPEST BUSINESS JOURNAL DOES NOT TAKE RESPONSIBILITY

M&A in the Pandemic

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Budapest Business Journal | December 11, 2020 – January 14, 2021

Socialite Cannabidiol Comes to Hungary

Brain Tumor

I had thought cannabidiol (or CBD, an extract from cannabis plants) was illegal in Hungary, so I was surprised to see Aidvian’s CBD Water in my friendly neighborhood Szeged bio store.

After our interview, Cserepes contacted me with this follow up story. “We were recently contacted by a woman whose daughter has a brain tumor. It was too large to start the radiation therapy. Her parents looked for any possible treatment and found Aidvian’s CBD Oil in one of our partners’ stores.

While she started taking CBD oil, her tumor started to shrink and weaken to the point that the radiation therapy became possible.”

“We can’t advertise on social media so we work with search engine optimization, drive people to our webshop and ship directly to customers.

We’re also in over 100 bio stores and want to build more of these partnerships, working with stores to educate their people to the benefits of CBD. That’s our big challenge, simply educating people.”

DAVID HOLZER

CBD works by interacting with our own endocannabinoid system so it helps regulate organ functions. According to clinical research, CBD has antioxidant, anti-inflammatory, anticonvulsant, antidepressant, and antitumor effects. It doesn’t get you high and it’s not addictive.

But Aidvian does recommend you consult your physician if you’re pregnant, breastfeeding or on medication. You shouldn’t take it if you’re on blood thinners or sedatives because it can lower blood pressure. Some people experience a dry mouth and increased alertness. You might also be allergic to CBD. It doesn’t have any side effects for me so I started drinking Aidvian’s CBD Water.

It comes in four flavors: Blood Orange, Lemon, Watermelon and Original which is meant to taste of the cannabis plant. I drink it after yoga and it feels like my muscles ache less.

Curious about how Aidvian came to be in Hungary, I got in touch with the brand via its Facebook page. I met Márk Cserepes, broadly responsible for marketing and sales for the brand, and Lászlo Nagy, co-founder, at the Madal café in Budapest. They’re from Pécs,

209 km south

illness can benefit from taking CBD. For example, the conventional ways of treating cancer have unpleasant side effects. CBD can help reduce dizziness and nausea.”

Stella, the Cserepes family pet, regained use of all four of her legs following surgery after being given CBD. Photo by Aidvian. are real.’ It’s why we created an oil for pets and dog treats containing CBD.” The hemp Aidvian uses comes from the United States; the company says it works with medical experts to create the products, and all the packaging is done inhouse.

I asked Cserepes what the Hungarian regulations were regarding CBD.

Certified

“All our products are certified by the of the capital. appropriate institute in Hungary. We can Although they clearly spotted an sell CBD as a food supplement. But there’s opportunity, the two men started Aidvian a limit to how much we can add to food, because they wanted to help people and they which is why we put just 10 mg maximum had direct experience of its efficacy. That in our half-liter bottles of water.” was three years ago, and this is the first year What about levels of THC, the the products are actually on the market. psychoactive part. Do their products “We found that using CBD really helped contain any? people in our own family,” Cserepes told me.

“There is TCH in our products, yes.

“This kickstarted our journey. Also, I Regulations vary a little from country to have five dogs. One of them refused to use country but for most of Europe, including all four of her legs after surgery. She had Hungary, the amount of THC a product is many operations. The vet came but nothing allowed to contain right now is 0.2%, although helped. We began giving her CBD and she this is expected to more than double.” started using all four legs. This can’t be a At the moment, Aidvian is only selling in placebo effect because the dog doesn’t know Hungary, testing and refining its products she’s being given CBD. We thought ‘here’s in this country’s market. The pair claim the something else that shows us the benefits products are unique. I asked why.

“We use a full spectrum CBD extract which means that it contains all of the beneficial compounds found in the cannabis plant as well as a little THC so it’s more effective. We also use terpenes oil to enhance the CBD’s efficacy.”

The “terpene profiles,” as Aidvian calls them, also set the product range apart. They offer Wellness, Relax, Energy and Focus profiles that each work in a slightly different way, as the name suggests. The Pet Care products have a different profile because animals have a higher sensitivity to CBD. Are there any restrictions on marketing and advertising?

“We can’t advertise on social media so we work with search engine optimization, drive people to our webshop and ship directly to customers. We’re also in over

100

bio stores

and want to build more of these partnerships, working with stores to educate their people to the benefits of CBD. That’s our big challenge, simply educating people.”

What is the target audience? Is it to do with age?

“It’s not about age. We have two audiences. People suffering from a serious

Other people take CBD to protect their health or because they do sports or, like me, yoga, and want to reduce muscle inflammation and pain.

Although Aidvian has got quite a challenge on its hands, this year of lockdowns and economic uncertainty hasn’t helped, its founders are confident the brand has a bright future.

Their plan is to build a presence in Eastern Europe, starting with Poland.

“There’s more competition in the liberal countries like the United Kingdom and France,” Cserepes told me. “But Poland is broadly similar to Hungary and we can adapt our marketing strategy to be effective there.”

Alongside expansion into other countries, Aidvian aims to broaden its range of products to include things like CBD chocolate. There are also plans for a CBD beer, and the brand is looking for a microbrewer to work with. Fortunately, the craft beer scene in Hungary is booming.

You can find out more about Advian’s product range and the benefits of CBD at www.aidvian.com/en

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Budapest Business Journal | December 11, 2020 – January 14, 2021

A Festive Round for the Holidays. Cheers!

Tamás Borbély, who plies his trade at his family’s winery, Borbély Családi Pincészet, in the volcanic region of Badacsony on the northern side of Lake Balaton has been named as the Hungarian Wine Academy’s Winemaker of the Year for 2020, becoming the 30th recipient of the coveted award.

ROBERT SMYTH

While there are now so many winemakers for the academy’s members to choose from, and cynics might point out that he earlier worked for the company that organizes the award, Magyar Szőlő- és Borkultúra, it is nevertheless just reward for an everimproving range of wines that exude a strong sense of place.

His wines have gone from being occasionally very good but often overly rustic and a tad wild and untamed, to consistent, concentrated and expressive, without losing their volcanic explosiveness.

Borbély Családi Pincészet’s Kőmagas Rajnai Rizling 2016 was ranked 29th in the Winelover’s “100 legjobb Magyar Bor” (100 best Hungarian wines) ranking, which took in Hungarian wines that have won prizes in leading foreign and domestic wine competitions and then pitted them against each other.

This single-vineyard wine brilliantly shows that the Riesling grape can make

Socialite | 19

from a centuries-old process, yet is boosted and rendered fresher by modern technology that brings it bursting into the present.

The way it is made is unique compared to the other botrytized wines of the world – whereby the grapes, afflicted with the so-called “noble rot”, are picked one-byone in several sweeps of the vineyard, steeped in a base wine made of regular “healthy” late-harvest grapes that have not been hit by the fungus.

The raisin-like, shriveled aszú berries have been attacked by Botrytis cinerea, which is activated and encouraged in the fall by morning fogs caused by the unique humidity in the Tokaj region, partly due to the Tisza and Bodrog rivers converging in Tokaj, and the sunny fall days.

The mold greatly concentrates the sugar, acidity and flavor in the berries as the water diminishes. To add to the historical aspect, a lot of aszú comes from the first vineyards to be officially classified in the world, yet today it’s sadly underappreciated by many consumers who run a mile from anything sweet.

Sugar and Acid

it in Hungary (some consider it too warm here for the originally German grape). This wine is in a very appealing stage of its development with that prized Riesling petrol-like note now quite prominent, but with plenty of similarly varietally pure green apple and peach alongside.

The promise of the nose is followed up on the waxy and dense palate, which is powerful, yet given focus by the firm acidity. It comes from the volcanic basalt soil of the Kőmagas vineyard, from the southern slopes of Csobánc Hill and, quite rare for Riesling, was aged in new oak barrels, of 500 liters, for six months.

The oak is very well integrated and doesn’t block out the varietal character in the slightest, but adds an extra dimension; it is also amazing value at HUF 2,690 from kulonlegesborok.hu.

Another fine wine from the new winemaker of the year is an Olaszrizling – the pan-Central European grape that bears no relation to Riesling. The single vineyard Bács hegyi Olaszrizling 2016 (HUF 3,400 from kulonlegesborok.hu) is vinified in large, 10 hectoliter barrels and is deliciously concentrated and spicy.

Top Names

The list of the previous 29 people to have been named Winemaker of the Year is available on the magyarborakademia.hu website, and is a veritable Who’s Who of the Hungarian winemaking firmament. The award works its way up and down the land, and even beyond (into present day Romania in the case of 2018 winner Géza Balla from the Ménes region, near Arad) and doesn’t just focus on the obvious regions.

Should you be in the Great Market Hall doing your shopping for the holidays, check out “Bor tér”, which can be found towards the back of the basement, which has plaques on its walls that currently honors the 29 people to have been named Winemaker of the Year since 1991 (the 30th will soon to be added). There is also a concise summary display of Hungary’s wine regions and grape varieties (in English and Hungarian).

Be sure to put some Tokaji Aszú, which is Hungary’s greatest gift to wine world and is judged by many leading critics as the finest botrytized sweet wine on earth, on your Christmas shopping list. Tokaji Aszú has serious history and is made

Champagne & Sparkling Wine World Championships 2020 judges at work.

For my palate, 5 puttonyos Tokaji Aszú strikes the optimal balance between residual sugar (120-150 grams per liter) and acidity, making the wine layered and complex rather than overtly sweet, while 6 puttonyos (over 150 grams of residual sugar per liter) can be a bit too heady and sweetly sumptuous for my palate.

The price of Tokaji Aszú can reach the super-premium, which is totally understandable given the intricacy of the production method and the fact that the grapes are picked one by one, although there are still some relative bargains to be had.

When you drink the very best aszú, you can almost see the shriveled grapes, and that is very much the case with Disznókő’s 5 puttonyos 2011. It comes from a hot, dry vintage that brought both full body and a tropical twist to the wine without compromising the freshness, with aromas and flavors of orange peel, honey, dried apricot (a typical botrytis note), caramel and mango, with the sugar and acidity in absolute balance.

It is very long with the literally buzzing acidity cutting effortlessly through the sugar. This was the number two wine of Winelover’s 100 best Hungarian wines and costs HUF 10,910 from wineloverswebshop.hu.

For fine festive bubbly, Somló’s Kreinbacher Birtok is still the source of the most accomplished traditional method sparkling wine in Hungary, and continues to reap international recognition.

By importing technology from France and savoir-faire from Champagne, and combining it with the local expertise and terroir, Kreinbacher has claimed a number of gongs in the most prestigious bubbly competition, The Champagne & Sparkling Wine World Championships 2020 (CSWWC), with its Brut Classic 2016 Magnum claiming a gold medal in the latest edition of the event, to add to two silvers. It is currently very hard to come by a bottle, though, so keep your eyes peeled.