Hungary Central Bank Scandal Sinks Polish Developer GTC’s Bonds

(Bloomberg) — Polish real estate developer Globe Trade Centre SA’s bonds have tumbled due to concerns over the potential fallout from a crisis engulfing a Hungarian central bank foundation.

Optima Befektetesi Zrt., which manages the assets of the foundation, holds a 62.6% stake in GTC. A state auditor in Budapest said last week that the foundation was on the brink of insolvency, triggering a police probe into potential wrongdoing.

The yield on GTC’s euro-denominated bond, due in June 2026, traded above 13% in the morning session in Warsaw, up from 8.4% a week ago, according to data compiled by Bloomberg. The developer’s Warsaw-listed shares have declined more than 7% over the last three sessions.

Optima’s difficulties are raising worries over GTC’s ability to smoothly roll over its €500 million ($542 million) junk-rated note, according to Cezary Bernatek, an analyst at Erste Group Bank AG. For now, the developer is on a “good path to proceed with refinancing,” he said. 

“Nevertheless, the current troubles regarding Optima may be seen as concerning especially by debt investors,” Bernatek said. If the situation worsens, GTC may face higher refinancing costs, he added. 

In a statement late on Friday, GTC said that Optima’s situation had no “direct” impact on operations and that its financial position remained strong. A day earlier, the Warsaw-based company delayed the publication of its annual report for 2024, seeking more time to consolidate a recently bought German real estate portfolio.

GTC shares have fallen since Optima bought the developer in 2020, with the value of its stake worth less than half of the original average purchase price of 9 zloty, which represented an unjustified premium, according to Hungary’s State Audit Office. 

On top of the loss on the GTC stake, amounting to 162 billion forint ($442 million) as of the end of 2024, the foundation also had another loss-making investment in Swiss luxury chalet operator Ultima Capital SA. 

A plan in 2023 to have GTC buy Ultima was abandoned after investors voiced concerns. That left both investments in the hands of the central bank foundation, which needs capital to stay afloat, the auditor said, citing an internal Optima report from February 2024. 

“The current situation can only be resolved by raising external funds immediately,” the auditors cited the document as saying. Optima’s assets, consisting mainly of Ultima and GTC shares, “can only be sold on the stock exchange at a high loss and in small blocks,” according to the memo.

The central bank’s new Governor Mihaly Varga, who took over this month, has said he would step up financial discipline by “reviewing and rationalizing expenditures.” In one of his first steps as governor, Varga replaced the management of Optima. 

The central bank said it had no comment beyond these earlier statements.

Bloomberg has also reached out to Optima for comment. The foundation rejected the assessment that it was on the brink of insolvency, according to a January letter from its board president.

Fitch cut GTC’s credit score to BB , the highest non-investment grade, in 2023 and last November reduced its outlook on the rating to negative, citing the acquisition of the risky German portfolio.

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