Hungary Petrochemicals Report Q2 2008

The possibility that Hungary's oil and gas company MOL could be the object of a hostile takeover from Austrian rival OMV continues to cause uncertainty in the Hungarian petrochemicals sector.

In February 2008, the European Commission indicated that it would open an in-depth competition investigation of OMV's take-over bid, looking at transmission networks and petrochemicals. OMV has asked the Commission to clear the bid but EU competition regulators must first verify that the deal would not harm competition. The Commission is due to report in late July 2008.

At the same time, OMV is cranking up the pressure on MOL in an attempt to reinvigorate its takeover bid for the company. The new focus of OMV is on MOL's 'quasi-treasury share' arrangements, which allow MOL to control some 40% of its stock through its board and friendly institutions. OMV argues that this stock should be regarded as treasury shares and will put forward a resolution to that effect at MOL's annual shareholders' meeting on April 24. The resolution covers shareholders including BNP Paribas, OTP Bank and Czech utility CEZ. OMV now holds 20.2% of MOL and its latest bid values the target at US$20bn.

Strategically, a merger may be attractive over the longer term. OMV's statement after its share acquisition that it was focused on pre-positioning itself for future industry consolidation highlights broad concern among mid-sized European companies about their competitiveness as the EC attempts to enforce greater market liberalisation.

Results from Hungarian petrochemicals producer Tiszai Vegyi Kombinat (TVK) in 2007 reveal that the industry was operating at or above capacity throughout the year. Over 90% of olefins production and 27% of polymer production was sold domestically, revealing that the Hungary's petrochemical sector is adding value for export. TVK's results show that high-density polyethylene (HDPE) accounts for nearly twothirds of polymer exports, with polypropylene (PP) representing 25% and low-density polyethylene (LDPE) contributing 10%.

The Hungarian petrochemicals industry is expected to grow over the forecast period, due to the country's geographic location and the success of its privatisation programme. The industry has also been successful in attracting foreign capital. New players are likely to enter the Hungarian regional chemicals and petrochemicals industry.