UPDATE 1-Hungary's govt to renationalise airline Malev

BUDAPEST, Feb 27 (Reuters) - Hungary will almost fully renationalise air carrier Malev under a deal signed by the government and Malev's Hungarian and Russian shareholders in a bid to save the airline, the government said on Saturday.

Under the agreement, reached after lengthy negotiations, the Hungarian government will raise Malev's capital by 25.2 billion Hungarian forints ($127.8 million) by injecting cash into the firm and converting its debts into equity.

This will result in the state holding a 95 percent stake in the airline, while the Russian shareholder AirBridge will have a 5 percent stake, the finance ministry said in a statement.

'The Hungarian state taking a majority stake (in Malev) will create the possibility for the company to operate in a financially stable way,' the ministry said.

The two governments have been in talks for almost a year over loss-making Malev, owned by Airbridge in which Russia's state-owned Vneshekonombank holds 49 percent, with the rest of the shares held by Hungarian executive Magdolna Kolto.

Hungary's government said last year it planned to convert some of its financial guarantees into a stake in Malev which was badly in need of fresh capital and had big debts.

'Vneshekonombank will remain one of the biggest creditors of the Hungarian airline,' the statement said adding that the Russian bank will pay Hungary a 32 million euro bank guarantee and will also convert Malev's loans to more favourable terms.

The government said it aimed for a solution for Malev which would be in line with domestic and European Union regulations.

'The strong restructuring programme started at the company must be continued partly to ensure that the financial rescue of the firm costs as little in taxpayers' money as possible, and also to ensure that the EU would not regard the Hungarian state's role as prohibited state subsidies,' the statement said.

The aim of the restructuring is that Malev should become profitable by 2012 the latest and this will necessitate further layoffs and a renegotiation of suppliers' contracts, the ministry said.

Hungary sold off Malev to AirBridge in 2007.

Malev has been struggling with financing difficulties and received capital injections in the past years.

(Reporting by Krisztina Than; Editing by David Gregorio)

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