=DJ Hungary Renationalizes Airline Malev As Privatization Fails

BUDAPEST (Dow Jones)--The Hungarian government will gain a 95% stake in Hungarian airline Malev Zrt. to keep the firm operational since its 2007 privatization has failed, the Hungarian Finance Ministry said Saturday.

Hungary will inject 25.2 billion forints ($126.4 million) into the airline, partly through converting debt into equity, with contribution in kind, and also in the form of cash, the ministry said in a release.

Current main owner AirBridge, which is 49% owned by Russian Vnesheconombank and 51% by a Hungarian private individual, will retain a 5% stake in Malev.

"The restructuring of Malev needs to continue so that its operation will consume the lowest amount of taxpayer money and also that the European Union won't regard the Hungarian government's step as unlawful state support," the ministry said.

As part of the deal, Vnesheconombank will pay the government the EUR32 million in bank guarantees already pledged in the privatization transaction, and it will also convert Malev's "relatively unfavorable" loans into a debt with a lower interest rate, the ministry said.

The government targets to turn Malev profitable by 2012 the latest. The government plans "tough steps," which will include further layoffs and a renegotiation of the company's supply contracts, trade union agreements, the ministry added.

Ministry Web site: www.pm.gov.hu

-By Margit Feher, Dow Jones Newswires, +36-20-925-2364; margit.feher@dowjones.com

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(END) Dow Jones Newswires

February 27, 2010 08:17 ET (13:17 GMT)

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