Hungary To Distribute State-Owned Shares To Every Hungarian Citizen

“[...] it is time to reopen the door of ownership for everyone," Gyurcsány said in its keynote speech in Parliament on Monday.

He said the cabinet would think over in the months to follow which shares would be offered to any Hungarian citizen to obtain.

There is hardly any detail available as to how the government would carry out this share distribution. What is known, however, is that in exchange for few thousand forint monthly instalments everyone would be given a few hundred thousand forint share capital, which means one or two million forint worth of state-owned assets would be handed out to each family.

With regard to the framework of the share distribution programme, the PM emphasised the system must be well-controllable and transparent so that not only a few people would be able to obtain shares. The aim is to create permanent ownership for Hungarian citizens and that everyone would be able to “feel the join and responsibility of ownership", Gyurcsány added.

As for the means to acquire the shares the PM mentioned the possibility of payment in instalments, tax allowance and discount share price. He stressed that the state would not part with its majority holding in strategically important companies.

Portfolio.hu viewpoint:

At first glimpse we have a very bad feeling about this idea, which seems to be a huge step backward to the flopped privatisation attempts in the 1990s (compensation coupons, Czech coupon invasion, establishment of Polish state funds), but the aim now is a mere distribution to the masses rather than mass privatisation.

As the volume of privatisation-slated assets is much smaller and government is to part with its minority shareholdings, the problem of having “inadequate" owners, who have shortage of capital and no notion as to how to practice ownership rights let alone control a company, is much smaller. Nevertheless, we can be sure that there will be misconducts and arbitrage opportunities and loopholes will definitely be sought out despite government promises for a transparent system.

Another interesting factor in the story is the scope of companies affected. Looking around in the market we believe Magyar Posta (Hungarian Post), railway company MÁV, electricity works MVM and gambling co. Szerencsejáték Rt. could be affected, as well as the remaining state-held stake in leading drugs producer Richter Gedeon. (There are additional, though smaller opportunities in motorway management company ÁAK, Budapest Airport and the Budapest Transport Company (BKV), but please don't take the latter seriously - it's only a joke, perhaps just like the whole idea...)

Let's not forget, though, that if a share is illiquid, its price can drop fast and in this case the loss of money is guaranteed. Let's just imagine for a moment MÁV being jointly state and privately owned. A dreadful possibility, isn't it? If we take illiquid shares as a serious possibility, we believe Szerencsejáték and ÁAK could be a good choice, but because the state determines the price of their services, the dividend payment (the future value of the company) would be highly uncertain here.

What is left is the floating of the shares on the Budapest Stock Exchange (BSE). In our mind's eye we can already visualise strawmen queuing up in front of offices with the speculators rubbing their hands on the next corner. The initiative is good for one thing though. This whole share distribution scheme is complicated enough to divert attention from the oncoming referendum (9 March) - the government has taken over the opposition from the left. And we have long got used to see governments turning strategic issues into plays of political comedy."

Sorce: Portfolio Online Financial Journal