The latest information on the rating, including rating reports and related methodologies, is available on this LINK.

Rating action

Scope Ratings has placed the BB- rating of Tegeta Motors LLC under review for a possible downgrade. The BB- senior unsecured bond rating has also been placed under review for a possible downgrade.

Rating rationale

Covid-19 has led to a temporary shut-down of the majority of Georgian non-food retailers. While operations related to automotive retail have been reauthorised since the beginning of the week, the deterioration in visibility for the rest of 2020 and its potential impact on YE 2021 has led Scope to put the rating under review.

Scope expects a significant deterioration in the Tegeta’s revenue in 2020, due to the interruption of operations over the last few months. Furthermore, a potential change in the consumer purchasing behaviour could be detrimental for the group. It is impossible to assess how long it will take for shops’ footfall to increase to pre-crisis levels or future basket values and sizes in a period of deconfinement. While Scope expects the bus tender offers to mitigate some of the losses incurred in 2020, the most significant contract in terms of revenue and profitability is due at YE 2020, leading to a considerable deterioration in EBITDA in 2021 on comparable terms. Scope believes the company may issue some additional debt to mitigate the shortfall incurred in 2020, putting pressure on the metrics.

Tegeta has historically relied on short-term debt to finance some of its activities, leading to weak liquidity overall. As Scope expects a deterioration in the top line and EBITDA in 2020, liquidity may also deteriorate if the group increases its leverage. Scope has placed the current rating under review to obtain time to assess developments regarding the company and consumer behaviour over the coming months.

Outlook and rating-change drivers

Scope aims to resolve the review as soon as possible, within the next couple of months at the latest, depending on further developments. This is contingent on a timely end to the crisis and sufficient visibility. If the pandemic’s effects are confined to 2020, the current rating may remain valid. As the company relies on short-term financing, a longer period with impaired cash-flow generation could lead to significant liquidity issues and to a downgrade of at least one notch.

Stress testing & Cash flow analysis
No stress testing was performed. Scope performed its standard cash flow forecasting for the company.

Methodology
The methodology used for this rating(s) and/or rating outlook(s) (Corporate Rating Methodology, 26 February 2020)) is available on https://www.scoperatings.com/#!methodology/list.
Information on the meaning of each rating category, including definitions of default and recoveries can be viewed in the “Rating Definitions - Credit Ratings and Ancillary Services” published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how Environmental, Social or Governance factors (ESG factor) are incorporated into the rating can be found in the respective sections of the methodologies or guidance documents provided on www.Scoperatings.com/methodologies/ ESG factors in ratings. The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, sources and quality of information
The rating was requested by the rated entity or its agents.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity, third party and Scope internal sources.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH, Lennéstraße 56, D-10785 Berlin, Tel +49 30 27891-0 .
Lead analyst: Adrien Guerin, Analyst
Person responsible for approval of the rating: Olaf Tölke, Managing Director
The ratings/outlooks were first released by Scope on 15 May 2020

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
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