The Hungarian oil and gas firm MOL Rt. is reportedly close to an agreement with Slovnaft that would give them a majority 51% stake in the oil refinery and give the Slovak oil giant a boost in recovering from its near-financial disaster of a botched loan agreement with Merrill Lynch in 1999 and current losses of two billion Slovak crowns ($47.6 million).
Even though an expected announcement of the deal failed to materialise on March 28, Slovak, Austrian and Hungarian media reported that MOL was on the verge of clinching the deal with Slovakia's biggest exporter.
Ľubomír Žitňan, Slovnaft's spokesman, neither confirmed nor denied MOL's having won the bid, saying that Slovnaft was still in the decision making phase on its future strategic partner. MOL representatives were unavailable for comment. Also participating in the tender, which had a deadline set officially for March 31, were the Austrian oil refinery OMV, the Polish energy group PKN, and the Anglo-Dutch oil giant Shell.
Bidders compared
"I think there is a very high chance of the deal really being closed in favour of MOL," said Jozsef Miro, an equity analyst at Cashline Securities in Budapest, for the Budapest Business Journal. "With OMV Austria's general manager publicly admitting that his company is not willing to pay any price for Slovnaft, and [Polish] PKN announcing that it will concentrate on developing its inner markets, this leaves MOL as the only winner."
Analysts said that the two favourites MOL and OMV, both with extensive networks in Central Europe, were competing for dominance in the region. The winner of the tender would gain access to Slovnaft's oil refinery, one of the most modern in the area, as well as access to Slovnaft's export markets in southern Poland, the Czech Republic and Ukraine.
Some market analysts were surprised by MOL being the supposed winner. "I had thought that MOL wasn't quite the hot candidate, but this proved to be a little bit different. The presence of a big company with a distribution and outlet network already set up is just what Slovnaft would need. Someone like OMV would be perfect for that," said Miloš Božek of J & T Finance in Bratislava. "But it's pretty much MOL's now, they're a good firm and there isn't a great deal of difference between them and OMV [for Slovnaft]," he added.
The winner of the tender would gain a majority stake in the Slovak company by raising its capital by a minimum of 2.1 billion Slovak crowns ($50 million), in the process gaining a 15%-20% stake. Also included would be an option to buy 33.9% of the company's shares from Slovintegra, a management-owned entity that now controls 51%, for around 4.2 billion crowns ($100 million).
Analysts expected that the Slovak government would purchase the remaining 10.5% from Slovintegra for 1.5 billion crowns ($37 million).
Perceived as one of the more successful privatised Slovak firms, and having instigated a massive investment programme that made the refinery and its production more environmentally sound, Slovnaft had become a target for large multinational oil and gas firms. The purchase, expected to be announced some time in the next two weeks, would give MOL the lead in creating the first central European refining giant and leave the Hungarian firm as the premier player in its field in the region.
Preliminary results for 1999 indicated that Slovnaft's sales were 37.7 billion Slovak crowns ($897 million), compared with 30.2 billion crowns in 1998. From this, exports constituted 24.1 billion crowns ($573 million), which was 63.9% of revenues, compared with 60.13% in 1998. In 1999 Slovnaft processed 5.3 million tonnes of crude oil, approaching the volume processed in 1998 (5.4 million tons).
MOL, the largest company in Hungary, had revenues of 81.2 billion crowns ($1.9 billion) and an operational profit totalling 10.6 billion crowns ($252 million) during the first nine months of 1999. Though its ownership structure was not transparent, about 60% of MOL shares are in foreign hands, the biggest shareholder being the Bank of New York with 28.2%.
The search for a strategic investor for the Slovak oil giant began last year after a drop in the price of Brent crude oil, from a high point of $16 in 1997 to below $10 per barrel in the first three months of 1999, leaving Slovnaft with a loss of 950.7 million crowns from January to May 1999. A $150 million loan with Merrill Lynch, inversely related to the price of crude oil, saw the firm paying back 50% interest. Combined with a currency crisis affecting its foreign loans, Slovnaft found itself hit hard and needed a foreign investor to put it back on financial track.
