will be excluded from MSCI Hungary index and as a result of other MSCI EM indices, effective 1 December 2012, due to failing to meet the minimum liquidity requirement. Richter’s share amounts to 0.07% in the MSCI EM index, while 22.97% in the MSCI Hungary index.
The selling pressure can be expected from ETF tracking MSCI indices and other funds that are benchmarked to MSCI EM indices, therefore it is difficult to calculate exact impact.
Based on Bloomberg database, ETF and EM index benchmarked funds hold approximately 4-5 % stake in or 745k-931k shares, which are certain to get rid of shares before end of November. In value terms, it implies US$ 129-161m or HUF 29-36bn, at the current share price.
We believe the selling pressure in the next 2 weeks can create good buying opportunities as the fundamental story has not changed, in fact the regulatory environment should be more positive after the recent strategic agreement with the Hungarian government which will allow to deduct the 20% susbidy tax, the medrep fee (combined positive impact is roughly HUF 3.5bn, which is not yet in our model from 2014) from its R&D expense and shield it from any payments should the Hungarian drug subsidy budget experience a deficit in the future.