Closing a week of contradictory statements over the future of the state’s holding in pharmaceutical producer Richter Gedeon Rt, the State Privatization and Holding Rt (ÁPV) finally announced last Friday morning that it has begun the process of selling its stake in the company. It will issue a convertible financial instrument rather than selling ordinary class A shares, it said.

Earlier last week, ÁPV Chairman Tamás Meszáros told newswire service Bloomberg that it was unlikely to sell its interest in Richter this year, stating that the sale of the state’s remaining 12% holding in oil and gas company MOL Rt was more likely.

At that time, he said the ÁPV has an excellent relationship with Richter executives, who are keen to prevent a sale to a competitor. He termed Richter a “gem” which should remain in Hungarian hands in the long term.

Analysts said last Friday they were amazed at the apparent U-turn by the government.

“This is a severe communication defect on the part of the ÁPV,” said Miklós Bónis, head of research at Inter-Európa Bank Rt (IEB).

He added that the structure of the proposed deal could prove to be a stumbling block to the proposed sale.

The state, through the ÁPV, currently owns 4,659,373 Richter shares, or 25%, and is adamant that it will continue to have a measure of control over the company for the next five years at least, Bónis said. In order to achieve this, Bónis said, the ÁPV will invite institutional investors to buy a financial instrument, which he conjectured will probably be a depository certificate or convertible warrant. This, he explained, will allow the ÁPV to raise cash from the sale without giving voting rights to holders of the new instrument.

Tamás Pletser, who covers Richter for Erste Bank Investment Rt, noted that Richter shares slid downward on the Budapest Stock Exchange Rt (BÉT) on Friday afternoon. This was no surprise after the announcement, he said.

The ÁPV statement said that the winner of the tender to select a bid manager will have to organize a sale of financial instruments that could be converted to Richter shares at a later date. The sale could take place in one or multiple rounds, may or may not take place on the capital markets, and may or may not be closed to foreign investors, the statement added.

For its part, Richter issued an official statement saying that it views the transaction as favorable for shareholders, as it gives the company a good opportunity to continue its strategy in the medium term.

Richter added that the deal removes uncertainty among its business partners regarding possible changes in the shareholder structure. It therefore strengthens the company’s strategic partnerships and facilitates the building of further ones and of new, long-term agreements, the firm said.

IEB’s Bónis said that the biggest question surrounding the success or failure of the privatization will be the financial instrument itself and its liquidity. He opined that the average financial investor is not particularly interested in voting rights, and buys into companies with a view to good dividend or share price appreciation prospects – preferably both.

The ÁPV will have to offer an instrument that carries a dividend, and has a secondary market in order to attract the attention of large financial investors, he said.

(BBJ 03.v.04)