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

Rating action

Scope Ratings has today assigned a first-time issuer rating of B+/Stable to Stelius Zrt. Senior unsecured debt has been rated B+.

Rating rationale

The issuer rating of B+ reflects Stelius’ majority ownership of its core investees, allowing it to influence their dividend policies. Scope’s assessment is also supported by the increasing share of recurring management and service fee income, which is less volatile than dividend income, as payment by the undertakings is mandatory, and should reduce the volatility of the recurring cost-coverage ratio. The rating is likewise supported by Scope’s view that the recurring cost-coverage ratio should remain well above 1.0x in the medium term.

The rating is mainly constrained by the comparably high concentration of the company’s investments, which makes its gross asset value more vulnerable to changes in asset prices, with risks of a volatile leverage as measured by the loan-to-value ratio. Moreover, the rating is constrained by the significant concentration of income sources, with the company’s main dividend-paying undertaking expected to contribute 80%-90% of ordinary dividend income at the holding level.

Outlook and rating-change drivers

The Outlook is Stable and reflects Scope’s view that the company should maintain a recurring coverage of mandatory holding costs at above 1.0x in the medium term. The Outlook also incorporates the successful issuance under the Hungarian National Bank's Bond Funding for Growth Scheme of a senior unsecured bond of up to HUF 15bn with a tenor of 10 years and an analytically assumed coupon of 4%.

A positive rating action might be warranted upon an improvement in diversification and concentration in terms of income streams and/or gross asset value.

A negative rating action might be warranted if overall diversification or concentration deteriorated. This could occur if the company sold some major undertakings and used the proceeds for discretionary purposes such as dividend payments.

Long-term and short-term debt ratings

In the third quarter of 2020, Stelius plans to issue a senior unsecured corporate bond of up to HUF 15bn under the Hungarian National Bank’s Bond Funding for Growth Scheme. The bond is expected to have a 10-year tenor. Scope’s base case assumes a 4% coupon on this instrument. The bulk of issuance proceeds are planned for the modernisation and renovation of real estate, with the remainder earmarked for the digitalisation of Pledge Loan and Valuables and Ground Transportation businesses. Senior unsecured debt is rated at the same level as the issuer rating.

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 ratings and rating outlook: 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 https://www.scoperatings.com/#!methodology/list.
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, key sources and quality of information
The rating was not requested by the rated entity or its agents. The rating process was conducted:
With Rated Entity or Related Third Party Participation  [YES]
With Access to Internal Documents                               [YES]
With Access to Management                                         [YES]
The following substantially material sources of information were used to prepare the credit rating: the rated entity, the rated entities’ agents, public domain, 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 5, D-10785 Berlin, Tel +49 30 27891-0 .
Lead analyst: Werner Stäblein, Executive Director
Person responsible for approval of the rating:Olaf Tölke, Managing Director
The ratings/outlooks were first released by Scope on 6 July 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
© 2020 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Analysis GmbH, Scope Investor Services GmbH and Scope Risk Solutions GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions 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. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin. Scope Ratings GmbH, Lennéstraße 5, 10785 Berlin, District Court for Berlin (Charlottenburg) HRB 192993 B, Managing Director: Guillaume Jolivet.