Hungary, EBRD to Pay $281 Million for 30% Stake in Erste Unit

  • Hungary, EBRD to pay equal parts for 15% stakes each
  • Purchase part of 2015 deal with EBRD on easing banks’ burden

The Hungarian government and the European Bank for Reconstruction and Development agreed to pay a combined 77.8 billion forint ($281 million) for stakes in Erste Group Bank AG’s local unit, finalizing a deal which ignited a rally in domestic stocks last year.

EBRD and state-owned investment fund Corvinus Zrt. will get 15 percent stakes each in the transaction, which is expected to be completed in the fall, the parties said in a joint statement on Monday.

The deal builds on a 2015 agreement under which Hungarian Prime Minister Viktor Orban pledged to start cutting Europe’s highest bank tax and committed to "predictable" policies toward lenders. OTP Bank Nyrt. led a 44 percent rally in the benchmark BUX index last year on the anticipation that the Erste purchase was heralding an improvement for the financial industry after years of regulatory blows.

"With the transaction, the most important objective of the Hungarian government is to foster growth, by boosting lending and helping the Hungarian banking system contribute to expansion," Economy Minister Mihaly Varga said at the signing ceremony in Budapest.

Before the transaction’s completion, Erste will boost the unit’s capital to help provide additional credit to the Hungarian economy, it said. As part of its side of the deal, the government has already cut the special levy on banks for this year and is reducing it again in the 2017 budget.

The purchase price translates into a 1.1 price-to-book-value ratio, the statement said. Hungary has the right to sell its stake back at any time, while EBRD can exercise a similar option between five and nine years after the acquisition. Erste may use a right to buy back the stakes five years after the sale at the earliest.

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