MOL reported yesterday that it plans to sign an agreement to sell approximately 6 million Series A Ordinary Shares currently held in its Treasury to Magnolia Finance Limited, because it wants to exercise its option (valid between 1 March and 27 October 2006) to buy the 10% MOL shares held by Hungary's assets- sale agency, APV Rt. Magnolia, an investment vehicle based in the Channel Islands, will offer convertible bonds worth Euro 690 million, exchangeable to MOL shares between 2011 to 2016, MOL announced in a statement. MOL also plans concurrently with the sale to enter into a swap agreement with Magnolia that will give MOL the option to buy back the Series A ordinary shares of MOL in certain limited circumstances.
In case MOL would want to exercise the government stake, it should swap or sell all its treasury shares in order not to exceed the 10% limit set by Hungarian regulations (otherwise they should cancel shares above the 10% threshold). At the end of 2005, MOL had a total of 7.4m treasury shares, which is more than the current amount set in the agreement with Magnolia. MOL officials told to us that they hope that Magnolia will buy more shares on the back of strong demand for the convertibles. The release of the details about the transaction with Magnolia can be expected after the auction close of the convetrible bonds by Magnolia, on 10 March 2006.
We see the news as neutral. However, in case Magnolia would not buy all of MOL's treasury shares, we could imagine MOL looking for another solution to sell their remaining shares until the deadline (27 October) for exercising their option for the Government's stake.