New strategy at Hungarian post office

A new company strategy to be formalized this week will mandate state-owned
postal services company Magyar Posta Rt to follow the example of its Western
European peers and expand into banking and capital market activities.

The strategy could involve the acquisition of Postabank Rt, if OTP Bank Rt
fails in its bid to gain control of the nationalized lender, executives said.

The expansion plans are detailed in a package of proposals on Magyar Posta's
mid-term strategy that will be submitted to the company's owner, the Ministry
of Transportation and Water Management, on Feb. 28, according to Posta
spokeswoman Ildiko Szigeti. The ministry will study the proposals and could act on them by the end of the year, ministry spokesman Istvan Boross added.

Szigeti declined to offer further details about the strategic document, but
confirmed that Posta intends to expand into banking and capital market
activities in the future. Magyar Posta CEO Istvan Kalmar said in an interview
earlier that the company would apply to the State Financial Institutions
Supervision (PSzAF) for the necessary licenses.

Analysts said a move by the company into the banking market is justified, but
cautioned that its options are relatively limited. Judit Barta, a banking
analyst with market research company GKI Rt, said Posta may start providing
banking services via the Internet or acquire small state-owned banks such as
Konzumbank Rt or Polgari Kereskedelmi Bank (PK) Rt, currently owned by
Postabank. But she said the best choice would be an acquisition of Postabank
itself, as Magyar Posta already has strong distribution ties to the bank.

Daily Magyar Hirlap last week cited unnamed sources saying Magyar Posta had
targeted Postabank, but Szigeti declined to comment on the plans before the
strategy is made public.

Postabank's owner, the State Privatization and Holding Co. (APV) Rt, is in the
final stage of talks with OTP, and outgoing APV Chairman Gyula Gansperger last
week said the two parties should reach an agreement by the end of February or
the beginning of March.

OTP is believed to have offered around Ft 25 billion ($86.1 million) for Postabank, while the APV Rt had reportedly expected an offer closer to Ft 35 billion. Barta and other analysts said the APV might sell Postabank to Magyar Posta if OTP's bid is considered insufficient.

In 1999, the state decided to grant a 15% stake in Postabank to Magyar Posta,
but the plan was scuttled after the state started exclusive talks with OTP at
the end of last year.

Even OTP executives said the state might reconsider its plans if its talks with
OTP fail.

"Giving Postabank to Magyar Posta would provide a way out for the state if it
fails to reach an agreement with OTP," said Gyorgy Fenyo, OTP's head of
investor relations. He said Magyar Posta is considered a competitor of OTP's on the financial services market, but its plans to expand into banking do not
endanger the sale of Postabank to OTP.

If not through Postabank, Barta at GKI said Magyar Posta should expand by
getting a banking license for certain limited activities, such as keeping
current accounts and retail deposits, and conducting money transfers. She said
Magyar Posta has already equipped all of its outlets with POS terminals and has become involved in the sale of investment and insurance products of other
financial institutions, working on commission.

According to Magyar Posta's general strategy, all major investments and
developments should be completed by 2003-2004, in order to prepare for the
liberalization of the postal services market in the EU, expected in 2007. The
strategy mandates the company to re-enter markets it withdrew from after its
nationalization in the late 1940s and an overall restructuring in the early
1990s. Such fields included banking and telecommunications services. Magyar
Posta handles an average of Ft 4,500 billion in cash a year and is a primary
channel for cash and money transfers for state institutions, pension funds and
corporate clients.

It has already begun providing additional services beyond traditional postal
services. In 1999 the company started Posta-Click-Pakk, an online
business-to-customer program offering computer equipment, and a
business-to-business book wholesaling venture with Sunbooks Trade Kft last
August.

Magyar Posta currently has 44,000 employees and is the second-largest employer
in the country after state railway operator MAV Rt. In the first half of last
year, it had revenues of Ft 45.5 billion, a 14% increase on the same period a
year earlier. The company posted a Ft 4.1 billion pre-tax profit in the first
six months of last year.

In order to raise funds, Magyar Posta earlier intended to list on the Budapest
Stock Exchange, but was forced to abandon the plan. Currently, the only listed
postal company in Europe is Germany's Deutsche Post AG, which introduced its
shares on the Frankfurt bourse last November. Before the listing, the German
company established a wide range of services, including standard banking
services, retail and commercial lending, direct marketing, real estate
services, and also capital market services through a brokerage arm. Instead of
raising money on the public markets, Magyar Posta is now preparing to take out
a loan worth Ft 30 billion-Ft 40 billion, according to company executives. The
company is expected to receive state guarantees for the loan and may also seek
to increase its own capital from the current Ft 11 billion.

The fresh cash would also cover debts to the National Bank of Hungary, which
earlier extended the company Ft 30 billion in no-interest loans to shore up its cash management activities. Magyar Posta divested itself of many holdings last year in order to generate liquidity to cover long-term investments. The company sold its 10% stake in insurance company Generali-Providencia Rt to the Generali group for an undisclosed price and is also selling many of its 3,000 real estate properties, including the turn-of-the-century Klotild Palace on
Ferenciek tere. The company also has an option to sell half of its 10% stake in Vodafone, Hungary's fourth mobile phone services provider, to co-owner Antenna Hungaria Rt.

BUDAPEST BUSINESS JOURNAL, 26th February 2001