Scope Ratings reviews its ratings either yearly, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations. Monitoring reviews are unrelated to the calendar that outlines public finance rating actions.

Scope completed the monitoring review on Metál Hungária Holding Zrt. (MHH) including the current ratings on 30 September 2020. This monitoring note does not constitute a rating action nor does it indicate the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

MHH has remained market leader in its niche segment. This position is protected in the medium term by medium entry barriers for speciality construction (façade cladding and roof covering) and MHH’s longstanding relationships with clients. The company’s standing in the Hungarian market as well as its adequate customer diversification, limiting the impact of a single customer’s default or inadequate payment behaviour, are evidenced by H1 2020 results in line with Scope’s rating case, despite the current Covid-19 pandemic.

Debt protection as measured by Scope-adjusted EBITDA interest cover stood at 15x for the six months to end-June 2020 (unaudited). Scope expects it to remain sufficient despite an anticipated increase in indebtedness, driven by debt-financed expansion capex with low visibility, if investments keep cash flow at the current level. Relatively low fixed costs are expected to support positive free operating cash flow throughout the construction cycle. This will mitigate MHH’s exposure to the domestic construction industry, which leaves cash flow vulnerable to the expected cooldown. It will also mitigate the company’s weak segment diversification (all of MHH’s activities serve the same domestic end-markets).

MHH plans to issue a HUF 8bn senior unsecured corporate bond in Q4 2020 under the MNB Bond Funding for Growth Scheme. The planned bond has a 3.0% coupon and is amortising from 2022 in an amount of HUF 0.5bn per year (HUF 4bn ballon repayment at maturity in 2030). Proceeds are earmarked for the financing of working capital and the refinancing of (short-term) working-capital facilities, the development and/or purchase of assets and equipment (including IT improvements, acquisition of a steelwork or painting facility, machinery, new headquarters) and the acquisition of real estate assets (directly or indirectly). The final amount of bond proceeds which is allocated to each of the abovementioned investments will be decided in line with MHH’s strategy of becoming more competitive and agile.

The rating case for MHH’s B+/Stable issuer rating remains unchanged, backed by H1 2020 results in line with Scope’s expectations despite the Covid-19 outbreak and its impact on the economy. The higher flexibility with regard to the use of proceeds from the HUF 8bn bond to be issued under the MNB Bond Funding for Growth Scheme does not alter Scope’s view on average recovery expectations for senior unsecured debt in a hypothetical default scenario. This is reflected in the B+ rating for MHH’s senior unsecured debt.

The methodologies applicable for the reviewed ratings and rating Outlooks (Corporate Rating Methodology, published on 26 February 2020; Rating Methodology for European Construction Corporates, published on 17 January 2020) are available on https://www.scoperatings.com/#!methodology/list.

This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Philipp Wass, Executive Director

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