Category: Hungary

The ongoing COVID-19 pandemic has seriously disrupted supply chains and turned the global economy on its head. For many products the supply cannot meet increasing demand, while in other cases legal obstacles cause distribution problems. The average consumer is faced with one simple fact: the prices of certain products are increasing at an alarming rate.

However, if the price of a product noticeably differs from that in other countries, it may give rise to suspicion. This is the case with COVID rapid tests in Hungary, where prices significantly exceed those of neighbouring countries. As a result, the Hungarian Competition Authority (HCA) has decided to use its recently increased powers and launch an accelerated sectoral inquiry into the market. It published its report recently, on 4 February 2022.

What is an accelerated sectoral inquiry?

As we reported in a previous article on the national brick market¹, an accelerated proceeding differs from a normal sectoral inquiry in several ways. As an additional condition, it can be initiated if rapid intervention is justified. The HCA must prepare its draft report within one month, whereas a normal sectoral inquiry can take more than a year. Moreover, the HCA can even conduct dawn raids (otherwise mostly applied in cartel proceedings) to collect evidence. Market players may comment on the draft report within eight days instead of the usual 30 days, after which the HCA publishes the final report The right to access the file is also limited until after the investigation.

Otherwise, the goal of an accelerated sectoral inquiry is the same as that of a normal sectoral inquiry: to uncover and analyse market trends if price movements or other market circumstances indicate that competition could be distorted on a specific market.

In the present case, the HCA used almost all the tools available to it to conduct the accelerated sectoral inquiry. It conducted dawn raids and reached out to numerous market players for information. It even contacted other national competition authorities as well as the European Commission and prepared its draft report within 30 days. The HCA also conducted a market sweep (rapid online investigation) to obtain a better understanding of the online sales market of COVID rapid tests.

The HCA’s findings

The HCA issued its report on 4 February 2022. Its main conclusion was that the price competition is not intensive enough on the assessed market, hence the higher prices in Hungary compared to other countries.

First, who can sell COVID rapid tests in Hungary is restricted by law. Currently these products can only be sold in pharmacies and in specialist medical accessories shops and in their online shops. It is forbidden to sell these products in a general online shop, although the HCA discovered numerous online shops where COVID rapid tests were illegally offered for sale.

Second, the value chain for rapid antigen tests for self-monitoring is sometimes very long, with products passing through many different actors from manufacturers to consumers, with generally high margins. This also means that at each level of sale, new margins are added to the price of the product, which may ultimately be reflected in the price the consumer pays. For instance, according to the draft report, the margin of importers is already above 100%, and the margins of subsequent distributors are also between 20 and 200 %, resulting in up to five to seven times higher prices for final consumers compared to the import prices.

To address this problem, the HCA has proposed legislative changes to allow a broader range of sales outlets to sell COVID rapid tests (initially for a three-month trial period), and encouraging market players to develop shorter value chains, e.g. pharmaceutical wholesalers should purchase directly from manufacturers instead of local importers. Should this not result in decreased prices, the HCA also proposed that the Government consider setting statutory maximum prices, which are already applied in the case of PCR tests.

The HCA also informed the online shops that did not comply with the legal requirements regarding the sale of COVID rapid tests to cease their illegal practices by 14 February 2022. Following this date, the HCA will monitor online sales and if the problems persist, it will then initiate coordinated enforcement actions.

Comments

This time the HCA has not identified collusive practices that would necessitate further antitrust investigations into the conduct of the relevant market players.

However, the Hungarian Government has already acted on the HCA’s recommendations, and as of 9 February 2022 has broadened the range of sales outlets allowed to sell COVID rapid tests with those drogeries, petrol stations and retail chains who have authorisation to market pharmaceutical products. This will increase competition which is likely to result in more favourable prices for customers of COVID rapid tests.

Companies should be on the lookout for future accelerated sectoral inquiries, as the HCA is not shy to use this new tool if prices on a market seem to be too high, and the legislator also tends to intervene quickly in line with the HCA’s recommendations. It is also important to highlight that it is mandatory to reply to a request for information in an accelerated sectoral inquiry and failure to provide answers on time can result in significant procedural fines.

By Anna Turi, Counsel, and Márk Kovács, Associate, Schoenherr

The Hungarian National Bank (“MNB”) issued a guideline this January to assist market participants in the issuances of green bonds. This guideline is one of the measures that the MNB introduced under its Green Programme, which it launched in early 2019 to mitigate the risks associated with climate change and other environmental problems, to expand green financial services in Hungary, to widen the related knowledge base in Hungary and abroad, and to reduce financial market participants’ and its own ecological footprint. The Green Programme relating to green financial services consists of several initiatives, whose range continues to expand both in the banking sector and in capital markets with the sole aim of promoting green finance.

Encouraging green bonds

Launched in July 2019, the MNB’s Growth Bond Programme, under which market participants may also choose to issue green bonds, boosted the corporate bond market. After some cautious first steps, by 2021 it had become a popular financing tool and today the proportion of green bonds stands at 13 % of all bonds issued under the Growth Bond Programme. In addition, the MNB launched a Green Mortgage Bond Purchase Programme for the purchase of green-rated mortgage bonds to promote green housing lending.

The Budapest Stock Exchange (“BÉT”) also supports the development of the green bond market. In March 2021, the BÉT issued the ESG Reporting Guidelines for BÉT issuers. In addition to presenting the standards used in international practice in terms of content and format, the ESG Reporting Guide also provides practical help in preparing ESG reports.

Under the guideline, the funds raised by issuing green bonds must be spent on sustainability projects, which may range from environmental protection to social goals.  The guideline links its categorisation to various international standards and taxonomies (ICMA GBP, CBI standard and EU GBS). 

The guideline

The guideline set forth the main green bond standards, provides the issuers with a to-dos list and stipulates the necessary documentation and reporting obligations. The point of the extra documentation is to verify that the envisaged bonds issue qualifies as green. The issuer undertakes certain obligations that ensure that the funds will be allocated in a certain way to achieve certain green goals. External service providers verify these goals beforehand and check the allocation after the successful issuance.

When preparing to issue a green bond, the issuer is advised to contact a green verifier and a green investment service provider. The latter assist the issuer in analysing its operation and to assess if the envisaged project fits into a green standard and to prepare the green framework. The green verifier provides a second-party opinion on the green framework, the verification report or the external review, but may also be mandated to cross-check the allocation report and the environmental impact assessment. The guideline sets forth the expectations the documentation must meet content-wise and what data is advised to be included.

Conclusion 

Green bonds would have the strongest effect if they facilitate the implementation of investments that are useful for the environment and society but could not be realised under normal financing. In the issuer’s cost-benefit analysis, the net present value could be made positive primarily by reducing the costs of funds; therefore, green bonds would offer the most benefits if they allowed cheaper funds to be raised compared to normal bonds.

As the Hungarian financial market is still dominated by lending, encouraging bond issuances is vital for developing a heathy balance. MNB’s Growth Bond Programme give the Hungarian corporate bond market a kick-start; nevertheless, the programme was shut down in December last year. The MNB is now keen to support the Hungarian bond market by other means. The guideline of the MNB is an important assistance for the prospective issuers in Hungary; whereas it also helps establish a greener financial market in Hungary.

By Gergely Szaloki, Partner, Schoenherr

Schoenherr has advised Solus Advanced Materials’ subsidiary Volta Energy Solutions Hungary on a USD 28 million loan from the EBRD for the construction of a copper foil factory. Dentons advised the EBRD.

According to the EBRD, the loan “will support the construction of an ultra-thin copper foil factory for electric vehicle (EV) batteries in Tatabanya, northwestern Hungary, by Solus Advanced Materials of South Korea, which is one of the global leading producers of the material.”

Solus Advanced Materials is a global ultra-thin EV battery copper foil producer, with a portfolio of materials for electric vehicles, display materials, and biomaterials.

“We are pleased to finance this project, which marks another step forward in greening the economy and advancing e-mobility,” EBRD Head of Industries Frederic Lucenet commented. “We have a strong track record of financing electric vehicles manufacturing, electric vehicle batteries, and other electric vehicle supply chain components. We fully support Solus Advanced Materials’ growth and its contribution to Hungary’s becoming a hub for the European electric vehicle battery industry.”

“We are delighted with our cooperation with valued European partners such as the EBRD,” Solus Advanced Materials CFO Keunman Kwak added. “Construction of the plant in Hungary is a significant milestone for Solus and we believe the EBRD’s support will strengthen our growth strategy and contribute to accelerating the shift to EVs and a cleaner world for us all.”

The Schoenherr team included Managing Partner Kinga Hetenyi, Partner Gergely Szaloki, and Attorney-at-Law Virag Palguta.

The Dentons team was led by Partner Gergely Horvath.

The initiative of the European Commission aims to support innovation and fair competition by creating a framework for the issuance and provision of services related to crypto-assets. The Commission believes that where crypto-assets are not covered by the financial regulation of the European Union, the absence of applicable rules to services related to such assets leaves consumers and investors exposed to substantial risks. It aims to ensure a high level of consumer and investor protection as well as market integrity in the crypto-asset markets, and to address financial stability and monetary policy risks that could arise from the wide use of crypto-assets in financial markets.

In addition, the fact that some Member States have adopted national regulations for crypto-assets leads to regulatory fragmentation, which distorts competition in the single market, makes it more difficult for crypto-asset service providers to scale up their activities cross-border and gives rise to regulatory arbitrage. Thus, the Commission published the Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-Assets and amending Directive (EU) 2019/1937 (MiCA) on 24 September 2020, and the Council adopted its position on the proposal on 24 November 2021. The MiCA forms part of a broader package of measures coming under the Commission’s Digital Finance Strategy.

The scope of the MiCA 

The MiCA will not apply to crypto-assets that qualify as (a) financial instruments, (b) electronic money, (c) deposits, (d) structured deposits, and (e) securitisation. The MiCA considers that crypto-assets that qualify as financial instruments are already subject to the Markets in Financial Instruments Directive (MiFID) and that crypto-assets that constitute e-money under the existing Electronic Money Directive (EMD) definition fall within the EMD and the second Payment Services Directive (PSD2). These crypto-assets would not be subject to the MiCA.

Under the MiCA, “crypto-asset” means a digital representation of value or rights that may be transferred and stored electronically, using distributed ledger or similar technology. The MiCA defines three types of crypto-assets:

1. asset-referenced token, which purports to maintain a stable value by referring to the value of several fiat currencies that are legal tender, one or several commodities or one or several crypto-assets, or a combination of such assets; 

2. electronic money token, which is meant to be used as a means of exchange and that purports to maintain a stable value by referring to the value of a fiat currency that is legal tender; and
3. utility token, which is intended to provide digital access to a good or service, available on distributed ledger technology (DLT), and is only accepted by the issuer of that token.

Issuers

Further to the categorisation of the assets, the MiCA brought two new categories of subjects, more specifically the issuers of crypto-assets and crypto-asset service providers (CASP). The issuers are companies that offer any of the above-mentioned crypto-assets to the public or that are attempting to have the crypto-assets admitted to a crypto trading platform and hence would be obliged to issue a so-called whitepaper. CASP in turn include those companies that provides certain services in relation to crypto-assets; namely the custody and administration of crypto-assets on behalf of third parties, the operation of a crypto trading platform, the exchange of crypto-assets for fiat currency or for other crypto-assets, the execution of orders for crypto-assets on behalf of third parties, the placing of crypto-assets, the reception and transmission of orders for crypto-assets on behalf of third parties and providing advice on crypto-assets.

Whitepaper

The whitepaper the issuers are expected to issue is part of the MiCA’s broader investor protection tools. The MiCA imposes investor disclosure requirements on issuers of all crypto-assets, the whitepaper serving such disclosure (similar in nature to a securities prospectus) and required for admittance to a crypto-asset trading platform in the EU. The whitepaper must be registered with a designated EU regulator in one of the Member States where the crypto-asset will be marketed or admitted to trading on a crypto-asset trading platform, and published on the issuer’s website. The MiCA sets out requirements for the content and form of the white paper, which include provisions requiring detailed descriptions of the project, the rights and obligations attached to the crypto-asset, information on the underlying technology, and a description of the risks involved. The MiCA requires that such disclosures be fair, clear and not misleading. Significantly, the MiCA also imposes liability on the issuer for damages in case of a failure to meet this standard. 

Issuers of general crypto-assets do not, however, have to be established in the EU; nor do they have to be authorised under any EU directive. In contrast, issuers of e-money tokens and asset-referenced tokens must be established in the EU. An issuer of e-money tokens must become authorised as an e-money issuer under the EMD, whereas an issuer of asset referenced tokens must become authorised under MiCA, resulting in slightly different requirements. Because an e-money token will be classified as e-money under the EMD, the Commission’s proposal seeks to ensure that holders of e-money tokens benefit from the same protections afforded to holders of traditional e-money under the existing EMD. This means issuers of e-money tokens must provide token holders with a right to redeem their tokens at par, whereas no such obligation applies to the issuer of an asset-referenced token.

Conclusions

To sum up, the MiCA will provide a much greater degree of legal certainty, remove fragmented national regimes, and provide the ability for a general crypto-asset to be marketed EU-wide from a single point of entry. It was desired that the regulation proposed within the MiCA could fit into the currently existing regulation of capital markets as well as to the payments industry. Nevertheless, we can still see some missing aspects that need to be improved. The anonymous nature of crypto-assets tends to be the main reason why banks avoid working with crypto-asset service providers, as AML rules are difficult to adhere to. With the MiCA, banks could be open to these service providers.

By Gergely Szaloki, Partner, Schoenherr

Schoenherr has advised Fressnapf Hungary on its agreement to lease 1,700 square meters of office space in the Millennium Gardens building from TriGranit. Orban & Perlaki reportedly advised TriGranit.

According to Schoenherr, Millennium Gardens, “located in the 9th district of Budapest, will consist of an office building with a total leasable area of approximately 37,000 square meters. The office complex is the last new office building on the Danube riverbank in south Buda and is expected to receive a BREEAM certification.”

Fressnapf is a Germany-based pet-food company, operating in Hungary since 2002.

Founded in 1997, TriGranit is a real estate development platform operating in Central Europe. The company has offices in Budapest, Warsaw, and Krakow.

The Schoenherr team was led by Attorney-at-Law Laszlo Krupl and included Attorney-at-Law Adrian Menczelesz.

As reported by CEE Legal Matters on February 4, former Raiffeisen Bank Chief Legal Counsel Zita Tihanyi has joined Gardos Mosonyi Tomori Law Office as Partner.

Tihanyi specializes in banking law, compliance issues, data protection, and sustainability. Before joining the firm, she spent over twenty-six years at Raiffeisen Bank, having first joined as Legal Counsel in 1995, later promoted to Deputy Head of Legal and Work-out Department in 1997, and to Head of Legal and Compliance in 2006.

Since 2010, Tihanyi was a Managing Director at Raiffeisen Bank, as well as a Head of Legal, Company Secretariat, and Participation Management between 2010 and 2015, and a Head of Legal and Compliance Area, between 2015 and 2018. Since 2018, she has been Raiffeisen Bank’s Chief Legal Counsel.

Originally reported by CEE In-House Matters.

Dentons has advised the CPI Property Group on the sale of the Airport City Logistic Park to Wing. DLA Piper advised the buyer. “The transaction was carried out at a 5.6% yield, which is the lowest ever rate in the Hungarian industrial and logistics property market,” Wing informed.

The Airport City Logistics Park is located near Budapest Liszt Ferenc International Airport and includes about 44,000 square meters of warehouse buildings and 8,000 square meters of office area.

The CPI Property Group is a Luxembourg-headquartered income-generating real estate owner focusing on the Czech Republic, Berlin, and the wider CEE region. The company is listed on the Frankfurt Stock Exchange.

Wing is a privately-owned Hungarian real estate developer and investor.

“Airport City fits well into Wing’s existing real estate portfolio, as the company has already had a number of development projects in the area, the neighborhood of the airport,” Wing announced. “Therefore, this transaction will strengthen the company’s position in the Budapest industrial and logistics market, as well.”

The Dentons team included Partner Marcell Szonyi and Associate Zsombor Franko.

The DLA Piper team was led by Local Partner Szilard Kui and included Counsel Akos Becher, Attorney Angela Toth, and Associate Gabor Butor.

Former Senior Associate at Kinstellar moves to Mol Group as Head of Mergers and Acquisitions Legal.

Horvath joins from Kinstellar where he was Senior Associate since 2017. Prior to that, he worked for Strabag as Senior Legal Counsel between 2010 and 2017. Earlier still he was a Junior Associate at Bard, Cseri & Partners Law Office between 2005 and 2010.

“I am excited to return to my in-house counsel roots at the largest Hungarian company, and looking forward to tackling the upcoming transactions in this particularly demanding and interesting industry, with a more business focus mindset” commented Horvath.

Horvath holds a Bachelor’s degree from Pazmany Peter Catholic University.

Originally reported by CEE In-House Matters.

Veronika Bakonyi and Beatrix Berkes have been promoted to Partner at Gardos Mosonyi Tomori Law Office, while former Raiffeisen Bank Chief Legal Counsel Zita Tihanyi joins the firm as Partner.

Specializing in banking law and capital markets and securities, Bakonyi has been with the firm since 2019, having first joined as an Attorney. Prior to that, she spent over five years at Reti, Varszegi & Partners Law, first as a Trainee Lawyer from 2013 to 2017, and later as Attorney-at-Law from 2017 to 2018.

Berkes specializes in capital markets and has been with the firm since 2019 as an Associate. 

Tihanyi specializes in banking law, compliance issues, data protection, and sustainability. Before joining the firm, she spent over twenty-six years at Raiffeisen Bank, having first joined as Legal Counsel in 1995, later promoted to Deputy Head of Legal and Work-out Department in 1997, and to Head of Legal and Compliance in 2006. Since 2010, Tihanyi was a Managing Director at Raiffeisen Bank, as well as a Head of Legal, Company Secretariat, and Participation Management between 2010 and 2015, and a Head of Legal and Compliance Area, between 2015 and 2018. Since 2018, she has been Raiffeisen Bank’s Chief Legal Counsel.

“Our new Partners’ commitment, enthusiasm, and hard work will undoubtedly contribute significantly to our firm’s continued success,” the firm announced. 

Dentons has advised a syndicate of underwriters including BNP Paribas and JP Morgan on the second Wizz Air EUR 500 million issuance of 1% fixed-rate guaranteed notes due 2026. Reportedly, Clifford Chance and Ogier advised Wizz Air on the matter.

According to Dentons, “the notes were issued under Wizz Air’s Euro Medium Term Note Program by the Wizz Air Finance Company and guaranteed by Wizz Air Holdings.”

Wizz Air is a Budapest-headquartered ultra-low-cost carrier. The company intends to use the proceeds of the issuance for general financing purposes.

Dentons previously advised the underwriters on Wizz Air’s debut issuance in 2021 (as reported by CEE Legal Matters on January 25, 2021).

Dentons’ team was led by Partner Nick Hayday and included Senior Associate Victoria Wyer and Associate Zeeshan Hussain.