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Study on State Asset Management in the EU

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Study on State Asset Management in the EU Study on State asset management in the EU Pillar 4 – Ràba automative holding PLC Contract: ECFIN/187/2016/740792 Written by KPMG and Bocconi University February 2018 EUROPEAN COMMISSION Directorate-General for Economic and Financial Affairs Directorate Fiscal policy and policy mix and Directorate Investment, growth and structural reforms European Commission B-1049 Brussels 2 Ràba Automotive Holding plc This note discusses the re-nationalisation phenomenon that took place in Hungary post 2010. In particular, this case describes and then discusses the effects of the re- nationalisation1 of a formerly-privatised company operating in the automotive sector and in the military industry, the Hungarian Ràba Automotive Holding plc (i.e. Rába Járműipari Holding NYRT - Rába) by the Hungarian National Asset Management Inc (i.e. Magyar Nemzeti Vagyonkezelő ZRT - MNV). Rába was privatised in January 1992 and its shares were introduced in the stock market in 1997. 1. INTRODUCTION Hungary experienced several trends in public and private ownership during the last 30 years. In fact, in the early 1990s, after a push for privatisation of major Public Sector Holdings (PSHs) supported by the new parliamentary democracy after the collapse of the communist regime, a re-nationalisation trend was actively launched by the new government in 2010. In this context, the Hungarian National Asset Management Inc (i.e. Magyar Nemzeti Vagyonkezelő ZRT - MNV)2 played a key role, by managing directly the majority of PSHs in sectors labelled as “strategic” by the government (including energy, automotive, real estate). In 2011, the MNV had a portfolio of 415 state-owned companies (of which 358 directly managed by MNV)3, as detailed in Table 1. In addition, it also directly managed 14% of the state’s real estate properties for an overall value of 31 EUR Bn. Comparing this data with 2017 figures, the number of PSHs sharply increased (+17.1%) greatly due to the rise in the number of operating companies owned by MNV (+59%)4. Table 1 MNV’s portfolio, 2011 and 2017 State Owned Enterprises Number (2011) Number (2017) A) Operating companies 214 341 - majority owned 124 187 - minority owned 90 154 B) Under voluntary dissolution 60 6 C) Under liquidation 84 67 D) Companies directly managed (Total A+B+C) 358 414 E) Companies managed by other entities (Total) 57 72 Total # of State Owned Company in the MNV's portfolio (D+E) 415 486 Source: KPMG elaborations on MNV’s data. 1 The public bid was announced on 7th November 2011. 2 The MNV was created in 2008 following the merger of three organisations: the State Privatisation and Holding Company (Állami Privatizációs és Vagyonkezelo Rt. - ÁPV Rt.), the Treasury Property Directorate (Kincstári Vagyoni Igazgatósá) and the National Land Fund Management Organisation. It is a PSH controlled by the Ministry of National Development. Its most important tasks are regulated under the rules of the Act CXCVI of 2011 on National Assets. For more details, please see: http://www.mnv.hu/en/hungariannatassetman [Accessed 28th January 2018]. 3 For more details, please see: http://www.icpe.int/old/images/stories/High_Level_Meeting_2011/Countries/Hungarian_State_Holding_Co mpanyGovernance_of_state_ownership.ppt [Accessed 16th January 2018]. 4 For more details, please see: http://www.mnvzrt.hu/felso_menu/tarsasagi_portfolio/mnvportfolio/tarsasagiportfolio/tobbsegi_tulajdonu_t arsasagok [Accessed 16th January 2018]. 3 Study on State asset management in the EU – Pillar 4 Acquisition/entry in capital - Ràba Automotive Holding plc In Hungary, the automotive sector has historically been impacted by government's decisions, because it has always been seen as a tool for opening up the Hungarian market to foreign investments. In fact, it has always been considered as a priority for all-party governments; it became particularly critical after the early-2000s collapse in the production of 3 national leading automotive companies (Ikarus Busz Kft., Csepel and Ràba)5, which had been previously privatised. In particular Ràba, a Győr-based company6 with around 1,600 people employed in 2016, underwent both a privatisation (in 1992) and a re-nationalisation (in 2011). The Ràba Automotive Holding plc is the holding company of one of the Hungarian automotive groups, whose shares are listed in the Budapest Stock Exchange. Around 65% of its revenues come from export activities, mainly concentrated into three strategic markets: the European Union, the United States and the CIS Countries78. 2. CONTEXT AND IMPLEMENTATION In 1990, Hungary became a parliamentary democracy. Private property was enshrined in the Hungarian Constitution. The subsequent privatisation policies adopted by the government brought to the country a record number of private Foreign Direct Investments (FDIs) and coincided with the early accession of Hungary to both the North Atlantic Treaty Organization (NATO) in 1999 and to the European Union in 2004. In the “pro-privatisation phase”, several privatisations (and, just occasionally, re- nationalisations) had taken place – including some companies in the automotive industry (e.g. Ràba, Ikarus Busz). According to the Privatisation Barometer9, 181 public-to-private transactions were made over the 1990-2010 period. The cumulate revenues from privatisations over the 1990-2014 period amounts to 361.4 HUF Bn. By contrast, the elections of the Fidesz’ government in 2010 brought a full-scale reversal in the process, with a partial coming back to the pre-1990s policies. For example, the government adopted a cardinal Law listing the sectors that, according to the government itself, should be publicly owned (i.e. banking sector, utilities, media and transportation). In addition, companies previously owned by the local government replaced their ownership becoming companies owned by the central government. The post-2010 period was characterized by a large number of re-nationalisations strongly promoted by the Government and its Prime Minister Viktor Orbán. The stated objective was to correct the privatisation policies led by the previous governments. The strategy of Orbán’s government appears to be grounded on the following two pillars: the utility sector was defined as a “natural monopoly” requiring state ownership. In the cases in which utility-related companies had been privatised by the previous governments, they had to be re-nationalised; other sectors (i.e. banking and telecommunications) were labelled as “strategic”, thus justifying the rise in public ownership and a decrease in the part of shares owned by foreign groups. 5 For more informations, please see: https://www.pism.pl/files/?id_plik=13689 [Accessed 16th January 2017]. 6 Győr is currently one of Hungary’s most important automotive industrial locations with production plants of large automotive companies such as Audi. 7 The Commonwealth of Independent States (CIS) was created in December 1991 and currently includes Azerbaijan, Armenia, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Uzbekistan and Ukraine (see http://www.cis.minsk.by/page.php?id=74) [Accessed 28th January]. 8 KPMG elaborations on Rába annual reports. 9 KPMG elaborations on data from the Fondazione Eni Enrico Mattei (FEEM) database, 1980-2014. 4 Study on State asset management in the EU – Pillar 4 Acquisition/entry in capital - Ràba Automotive Holding plc The extent of the ongoing Hungarian re-nationalisation campaign is not very easily infered, as the transactions have been carried out by multiple institutions sitting into the Hungarian central government, such as the MNV, the Prime Minister’s Office, and the Hungarian Central Bank; branches of certain Ministries, some large PSHs, the Capital City of Budapest and other municipal governments. The re-nationalisation of Rába by MNV was officially justified by the Hungarian government as a way to safeguard a domestic automotive industry, following the collapse of other domestic companies that had been previously privatised and as a potential to produce military vehicles’ components. In addition, Rába has been a key piece of the government’s initiative to reboost production of passenger buses which were important export products of the Hungarian economy during the pre-90’s socialist era. The long term business development strategy for the company was supposed to be sustained also thanks to possible joint ventures with other major players operating at both EU and national level. 3. ANALYSIS OF THE DEALS Since the introduction of Ràba’ shares in the Budapest Stock Exchange in 1997, the ownership of Ràba had been spread between different owners. In particular, back in December 2010, the ownership structure of Ràba was spread among the following players: DRB Hicom Group (10.85%), and AEGON Zrt (9.12%); domestic corporations (26.37%), foreign corporations (3.55%), private investors (43.89%), and employees (0.40%). The remaining 6.82% was represented by Ràba’s treasury stock.10 On 7th November 2011, the MNV made a public takeover bid for the purchase of all shares issued by Ràba. The bid was approved by the Hungarian State Financial Supervision on 8th November 2011. In order to complete the public takeover bid, the bidder initiated the procedure of the European Commission in order to have its license to move forward with the transaction in accordance with the EU competition law. The European Commission declared the operation as “compatible” with the internal market and with the European Economic Area (EEA) Agreement. This decision was adopted in application
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