Ups and downs with the global economy

Inside View

2021 has been an extraordinary year, but lawyers, working from their offices or home, hybrid, have been busy, despite or because of the disruption and changes caused by the big issues facing the world, most obviously COVID and climate change. Life goes on, but not “business as usual.”

The high levels of foreign investment mean that Hungary is exposed to global trends and changes, and that is reflected in the transactions that have kept LKT and other law firms busy in the last year. Among the most active sectors have been automotive, energy, pharmaceuticals, and IT.

In the automotive sector, significant investments continued to be made by the OEMs and, in particular, battery manufacturers, mostly from Asia (South Korea, Japan, and China). All the challenges and changes facing supply chains cause problems, for example resulting in output from the auto industry in Hungary being significantly hit by the global chip shortage, but also opportunities with Hungary continuing to be seen as an attractive location. The Hungarian government actively supports such investments, and we have helped investors negotiate extensive cooperation agreements and subsidies.

Supply chain-related issues have also created significant work for our real estate lawyers, with the development of logistics sites generating deals, and for finance lawyers, who have been active in trade and inventory financing. Banking lawyers have also been involved in work influenced by ESG (environment, social, and governance) trends, including Hungary’s London- listed “green eurobond,” on which LKT advised the lead managers.

Some notable legislative developments have created opportunities and, more often, challenges for those investing and doing business in Hungary. FDI screening is a topic of increased worldwide importance and, in most transactions, is now another box that needs to be ticked. Hungary generally remains open to foreign investment (and notably more open than many other countries to investment from China); the FDI screening process is normally one that needs to be followed and taken into account in M&A transactions but does not lead to substantive problems. There have been some surprises, though, most notably the blocking of VIG’s proposed acquisition of Aegon’s business in Hungary, which remains contested and introduces significant uncertainty.

Another global issue, but subject to local rules and regulations and differences, is the response to COVID; much time has been spent by our employment lawyersadvising multinationals on compliance with local obligations relating to lockdowns, mask-wearing, testing, and mandatory vaccinations.

A legislative change in Hungary that attracted significant international attention was the introduction of restrictions affecting the LGBTQ community, which, in a world increasingly focused on ESG issues, caused several clients to review practices and procedures in the context of the new law.

The energy sector has also provided work for us, notably in nuclear and a continuing flow of renewable energy projects – solar and thermal – and lately, we see financial stress caused by increased gas pricing affecting businesses.

Fuel price increases add to the difficulties faced by the airline industry. Hungarian low-cost carrier Wizz Air is generally perceived to have come through the crisis relatively strongly, and LKT’s aircraft finance and related practices have continued to be busy.

Looking back on the last year, two other broad trends we see in our work are an increase in Hungarian cross-border investment into other CEE countries (most notably in real estate) and an increased number of transactions involving infrastructure, with the government recently initiating or supporting deals involving Budapest Airport and the management of the country’s motorway network.

Looking forward, there is much uncertainty globally, and in Hungary, we can add political uncertainty to the mix; after 12 years of the Orbán government, the opposition is more united than it has ever been. The upcoming election in spring 2022 may create uncertainty, although international investors are less likely to be worried by the economic impact, as the new leader of the opposition is notably pro-EU, pro-market economy, and anti-corruption, than by the political uncertainty and turmoil surrounding any change of government.


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