The Hungarian government will not grant a loan to local chemicals producers BorsodChem either via the Hungarian Development Bank (MFB) or any other state institution, the Ministry for National Development and Economy has announced on Friday. Its statement comes on several recent press reports about a possible bailout of the debt-ridden company by MFB or the state. The ministry also underlined that it does not hold a stake in BC.

The government is sympathising with the troubled company and its employees and urges its owners - current and future - “to think long-term in BorsodChem" and guarantee the safety of jobs at BC.

The ministry “closely monitors" the events around the company and talks between BorsodChem's present owners, creditors and the Chinese investors (Yantai Wanhua).

“In the current situation, however, the government does not wish to interfere actively in the discussions between the market players."

The current owners (Permira and VCP) of BorsodChem, which is floating on a river of debt towards a waterfall, revealed at a press conference earlier this week how they plan the company's reorganisation:

1. BorsodChem would receive a EUR 100 million loan from the Hungarian Development Bank (MFB) (The owners declined to disclose how large spread above EURIBOR the loan would carry, but BC CEO Wolfgang Büchele believes the interest would be market based and repayment would take place before the clearing of funds extended by the main lenders)

2. the main creditors of BC agreed to require only 25% of the interest repayment in cash for two years

3. those who granted the mezzanine loan will convert the loan to capital in full

4. Permira and VCP will inject further EUR 80 m capital into BC

The only “small" problem with this scenario was that China's Yantai Wanhua Polyurethanes, the strategic investor controlling about 75% of the mezzanine loan, stated that it does not support the ideas, as it wants to take over BorsodChem by its current owners exiting. Permira said every affected party but the Chinese supported the above proposals.

According to press reports, Wanhua's representatives have been in a full-blown series of talks with the affected parties, including the government. The economic ministry's statement, which leaves the reader it in quite a pickle due to the mumbo-jumbo phasing, sounds like the state had never even contemplated propping up BorsodChem with EUR 100 m, while Permira has said it several times and there has been no rebuttal whatsoever.

This indicates that the Chinese delegation got its message through to the cabinet, and the state has practically backed out from behind Permira.

It is hard to predict what lies ahead of BorsodChem but it seems very much likely that Permira's ideas will fall through. BC chief Büchele told the press conference that unless the company comes to an agreement with all parties on the aforementioned reorganization the fate of BC will be in the hands of its creditors and out of reach both for Permira and Wanhua.

Although the CEO said the creditors are backing Permira's notions, he also said the state was behind them too - and it does not seem to be the case right now.

Currently it seems that Wanhua has the upper hand in the battle for BorsodChem and Permira is running out of options. In the end it may be left with only one solution: selling/giving over BC to the Chinese.

Whether this is good news or bad news depends on what Wanhua wants. Based on their own statements and analysts' views do not see much to worry about.

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