Mol Agrees to Discuss Changes at Refiner INA, Croatia Says

Mol Nyrt., Hungary’s oil and gas company, agreed to discuss possible changes in how it runs Croatia’s national refiner after the government in Zagreb began a push to reassert control over the $7.3 billion company.

Croatia owns 44.84 percent of INA Industrija Nafte d.d. and wants to renegotiate a 2009 accord that gave Mol control after a judge ruled it was signed in an “act of corruption” under former Prime Minister Ivo Sanader, who was later convicted of corruption. Mol, with 49.1 percent in INA, said last week it would not cede control even if it may consider some changes to the agreement.

Croatia agreed with Mol to increase investment in INA and allow a “a bigger contribution to Croatia’s economy” after authorities complained that Mol resisted spending to develop INA and was running it as a subsidiary rather than a stand-alone company, according to the government’s website.

“We have agreed to develop INA in accordance with the interests of the Republic of Croatia,” Economy Minister Ivan Vrdoljak told journalists after meeting Mol officials in Zagreb.

Mol’s shares fell 1.2 percent at 2:00 p.m. in Budapest to 16,270 forint, while INA’s shares rose 1.6 percent to 4,291 kuna in Zagreb.

Mol threatened to sue Croatia for 2 billion kuna ($351 million) if the talks were not successful because the state has not made good on its 2009 pledge to take over INA’s money-losing gas unit. INA produced 38 percent of Mol’s oil and gas output in the first half of 2013.

Monthly Meetings

The two sides agreed to meet once a month to discuss management, cost controls, investment, profit sharing, buying oil and gas, retail and wholesale operations, and the gas business, the government said in the statement. Officials from Mol did not immediately comment after the talks.

“Clearly the negotiations will be tough, since the Croatian authorities have put forward a number of requests and Mol doesn’t want to lose its control over INA, which has important upstream assets,” Oleg Galbur, analyst at Raiffeisen Centrobank AG, said by e-mail. “In my opinion, both parties realize that a break-up would represent a negative outcome for them,” said Galbur, who has a hold rating on Mol.

Mol first bought into INA in 2003 and increased its stake in 2009. Successive governments in the European Union’s newest member have since struggled to reverse the contract arranged by Sanader, who quit office in July of that year and was later convicted of bribery and abuse of power.

Verdict Appeal

Sanader, who was sentenced to 10 years in prison, is appealing the verdict, and Mol has denied any wrongdoing.

The Supreme Court is expected to rule on Sanader’s appeal in the coming months. Should the Supreme Court uphold the verdict, Croatia may seek to annul the contract which, according to Prime Minister Zoran Milanovic, “the former government signed in a very unusual way.”

“There is a legal procedure against the person who signed that contract, who was prime minister at that time, and who was pronounced guilty in a non-binding verdict,” Milanovic told reporters yesterday in Zagreb. A confirmation of the verdict raises the “possibility of nullifying the contract.”

Croatian prosecutors have also pushed for Hungary to assist with questioning Mol Chairman Zsolt Hernadi, who signed the contracts with Sanader’s government.

The prosecutors said they may also pursue further action, including an EU-wide arrest warrant. Mol considers Croatian allegations against Hernadi to be “unfounded,” a Mol spokesperson said on July 11.

Possible Sale?

Mol supervisory board Chairman Gyorgy Mosonyi said last week the company may consider some changes to the shareholding agreement, such as veto rights. He said Mol won’t give up management control in INA, adding he was confident differences between the two shareholders can be resolved.

Failing to reach an agreement with Croatia may force Mol to sell its stake, Peter Szentirmai, a Budapest-based analyst at KBC Groep NV unit KBC Securities, said by phone.

“Such a robust change wouldn’t necessarily be positive for Mol, with the final outcome hinging on the price it would get for the INA stake,” said Szentirmai, who has a sell rating on the Hungarian company.

Croatia has contacted Russia’s OAO Rosneft as a potential buyer of Mol’s stake and part of the government’s stake as a way of solving the dispute, Bloomberg reported on Sept. 6, citing people familiar with the matter.

Milanovic’s office said on Sept. 9 the government is not in talks with the Russian company over selling the state stake.

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