Hungary will meet its budget deficit targets this year and next despite an adverse ruling by a European Union court on value-added tax regulations, the Economy Ministry said. The European Union’s Court of Justice decided that Hungary has “failed to fulfill its obligations” under the EU directive on VAT, according to the ruling. The court ordered Hungary to pay the costs. The ministry is assessing the budgetary impact of the ruling and the government will consider selling part of its stake in (1 9640 HUF, -0,56%) to ensure that revenue is on target in 2012.
The news was already mentioned by government officials this week. At this stage there is little visibility whether the government will sell any shares. It’s equally unpredictable in what way it will dispose of the share if it decides in favour of a sale. We reiterate our view that the news is ST negative (potential dilution) but LT positive (lower influence of government and higher free float). In the current turbulent market environment, investors are likely to focus more on the potential shortterm implication and thus we may see the share price to be under pressure. Our bullish investment view remains unchanged and we see this share price weakness as an attractive entry point for long-term investors.