Kester Eddy in Budapest -

It may only be Thursday, but Mol, the Hungarian oil and gas company, has taken a buffeting this week. The trouble began on Tuesday, July 5 when a report by Nepszabadsag, the country's leading left-liberal daily, that Croatian investigators had sought to extradite Zsolt Hernadi, Mol's executive chairman, over corruption allegations sent the shares into tailspin.

Although the Croatian and Hungarian authorities, together with Mol, denied the report later in the day - denials which initiated some recovery - Mol still lost 3.6% by the close, finishing at HUF20,150 on the Budapest bourse.

The investor jitters were understandable. The allegations that Hernadi had bribed former Croatian premier Ivo Sanader with a €10m payment in order win management rights for Mol in Ina, its Croatian counterpart, first surfaced in a Croatian media report last month. Mol, which holds a 47% in Ina, issued an immediate denial of the charges, and threatened legal action in response.

But with Sanader in an Austrian jail pending an extradition request by Croatia on separate corruption charges - which he too has denied - investors were spooked by fears that if Croatia indeed accused Hernadi of wrongdoing, it could lead to his resignation and Zagreb overturning the 2008 agreement giving Mol those management rights.

With Mol at the helm, Ina "had its best ever first quarter" this year, while the loss of Hernadi, who has led Mol for more than a decade, would be "absolutely negative" news, says Tamas Pletser, oil and gas analyst with ING in Budapest.

In theory these denials, together with a statement by Viktor Orban, the Hungarian prime minister, that as a major shareholder his government would not accept any modification to the shareholders' agreement, should have restored calm to the market. Instead, Mol opened slightly weaker Wednesday, July 6, and plunged further after more reports that the Croatian prosecutor's office, while not asking for extradition, had requested legal assistance from Hungary in an unspecified investigation into Ina.

Shares hit HUF19,460 at one point, 3% down on Tuesday's close, before making a partial comeback to finish at HUF19,900, a loss of 1.2% on the day.

Akos Herczenik, equity analyst with Raiffeisen Bank in Budapest, blamed automated stop-loss sales after Mol went through the HUF20,000 level for exacerbating losses on what he believes are in any case exaggerated fears. "It's crazy. For some fund managers they have these rules, and they have no other chance but to sell," he tells bne.

While Herczenik accepts that the reports from Croatia have unsettled investors, he argues that these are primarily due to political posturing in Zagreb, prior to elections expected this autumn, and that the reaction is out of proportion to any realistic risk.

And while in theory Croatia might seek to renegotiate Mol's management rights over Ina, the Hungarian prime minister's statement was unequivocal. "I think Mr Orban sent quite a hard message at the political level," he says, and, as the legality of Mol's overall stake in Ina cannot be legally questioned, there is "no reason" for Mol to be trading at a discount of 15% against its peers. "So long its stake is not under threat, such a large discount is not justified."

Problems elsewhere

But noting that Mol's shares have lost more than a fifth of their value since highs of close to HUF26,000 were hit during April, ING's Pletser points to other factors that may be keeping investors on edge.

Apart from macro factors - such as the lower oil price worldwide, which has reduced profits across the sector - he notes that the Hungarian government's purchase of a 21% stake in Mol from Russia's Surgutneftegaz, along with repeated statements of its intention to regain control of "strategic" companies in sectors such as energy, do little for investor sentiment.

Further, threats to Mol originate from well outside the immediate region, most notably (and somewhat ironically) due to Ina's rather successful efforts at exploration in Syria. "This very big project finished last year and is now on stream. This makes Syria responsible for something like one seventh of all Mol's [hydrocarbon] production," Pletser says.

Clearly, given the political upheavals now besetting Damascus, this promising development is at risk, though - perhaps surprisingly - not directly from any civilian protests. "Mol tells me that these fields are a long way from the troubled areas and that Syria is sending payments for the gas it uses," Pletser says.

Rather, the concern stems from the possible international reaction to government repression in the country. "I'm a bit afraid that if the European Union imposes sanctions, it will mean money transfers out, and asset transfers - I mean spare equipment - into Syria will be stopped," he says.