Slowly more and more information about the "New Ownership Program" (in Hungarian: Új Tulajdonos Program [ÚTP]) is coming to light, though the full public discussion will take place only in March and April. First of all, the estimated value of all the state-owned entrepreneurial companies is about 1,500-2,000 billion forints. Among them, of course, are real duds, such as MÁV. However, there are a few highly profitable companies: Magyar Villamos Művek (Hungarian Electric Works), Szerencsejáték (Hungarian Lotto), Állami Autópálya-kezelő (responsible for toll roads), and even Magyar Posta (Hungarian Postal Service). These companies are called "Zrt" which indicates that they are corporations in the sense of having shares, but right now the state is the sole shareholder. These "Zrt’s" would be made "open" in the sense that 49% of their shares would be in private hands. They would be freely traded on the stock exchange. A small percentage of this 49% would be available under the New Ownership Program.
As the plan now stands, a family would be able to purchase up to 1 million forints worth of stocks. They would have to make a down payment of 5% and could pay the rest over time. Ferenc Gyurcsány optimistically announced that in four years this 1 million forint initial purchase might be worth 5 million forints, in five years 10 million forints, and in eight years 20 million. From these numbers I gather that at the moment the government is thinking in terms of restricting the sale of purchased shares for at least four to eight years. All Hungarian citizens over eighteen would be eligible to buy stock in addition to citizens of other countries within the European Union who live in Hungary on a more or less permanent basis.
According to some estimates about 44% of the population has some savings: mostly in cash and in bank deposits with fairly low yields. The interest in ÚTP seems to be high. According to one of the polling companies, 2 million people are thinking of participating. As for reactions of the experts? Not surprisingly the management and brokers of the stock exchange are enthusiastic. Some people (for example, Éva Pálócz, head of Kopint-Tárki Zrt, an economic think-tank) worry that once the prohibition of the sales of shares is over, speculators will get hold of these stocks. These people bring up as an example the very badly executed program of "stocks" people received as compensation for lost property. Indeed, this was a nightmare as I know from my own experience. The hope is that there will be better safeguards this time. Surely, they must have learned something from that fiasco. Levente Blahó of Raiffeisen Bank is enthusiastic. He hopes though that a very large percentage of these stocks will freely circulate during the prohibition period because otherwise the prices of the stocks may be adversely affected.
For what my two cents is worth, let me compare this to what normally happens in an initial public offering (IPO) in the U.S. In an IPO a relatively small number of shares is offered to the public (Google, for instance, offered only 7%) with the rest retained by company founders, venture capitalists, and management. The "public" is rarely the little guy; normally before the stock starts trading on an exchange, investment banks and their best clients own the shares. Then the rest of the universe can weigh in. Do we believe in a company such as MasterCard or do we think it’s a loser like Vonage? The stock trades freely, sometimes wildly. In the meantime those who hold stock not offered to the public normally respect a lock-up period (usually a few months) and don’t try to sell their shares into the market. That would, of course, put pressure on the share price. But the stock that came public has changed hands countless times. This is the process of price discovery–what do people think the stock is really worth?
Under the Hungarian proposal it would seem that Hungarian citizens, assuming that they receive shares before stocks begin trading publicly, will be like American investment banks and their best clients (with huge leverage!) except for having a lengthy lock-up period. The balance of the 49% will trade freely on the BUX (akin to action after an IPO starts to trade on an exchange). So who wins? Well, if the stock goes up, everybody, including the government who is sitting on 51% of the company.
The closest thing to a leveraged buy out (LBO) is the deal being offered to Hungarians. Sounds good to me!