The Hungarian government is throwing a lifeline to one of eastern Europeâ??s biggest private-equity deals by offering a â?¬100m loan to Borsodchem, the chemicals group acquired by Permira, the UK private equity firm, for â?¬1.6bn in 2006.

The loan from the state-owned Hungarian Development Bank is conditional on Permira reaching an agreement with Borsodchemâ??s lenders to restructure its excessive debt in a way that is acceptable to Budapest.

It is rare for a government to step in with support for a private-equity owned company unless it is on the brink of bankruptcy.

In this controversial case however, the Hungarian government seems eager to support Borsodchem, which employs about 3,600 people, even if it helps Permira eventually to make a profit on the deal.

The Hungarian Development Bank has agreed a â?¬100m loan to finance completion of a new chemicals plant.

At the time of Permiraâ??s buy-out, banks provided the company with a â?¬300m capital expenditure facility â?? partly to finance the new plant. But they are reluctant to allow this to be drawn down now that its earnings have fallen sharply.

Permira is expected to inject about â?¬80m-â?¬90m more cash into the company to keep control. Mezzanine lenders are being asked to swap their â?¬200m loans for equity.

Senior lenders are being asked to roll-up interest payments, delaying their cash payment until the maturity of the loans. In total Borsodchem has about â?¬1.1bn of debt.