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

Rating action

Scope Ratings has assigned a first-time corporate rating of BBB+/Stable to Magyar Telekom Nyrt along with a first-time BBB+ senior unsecured debt rating.

Rating rationale

The business risk profile (BBB+) benefits mainly from the low cyclicality in the telecom industry and the company’s leading position in mobile and broadband markets in Hungary, which strongly support its competitive position. As the Hungarian telecommunications market is mature, Scope does not expect a significant change in market share. The group also displays stable profitability (29.6% EBITDA margin after leases in 2019), somewhat below that of main European peers. The group also benefits from a very strong position in North Macedonia.

Magyar Telekom’s financial risk profile (A-) is sustained by the Scope-adjusted debt (SaD)/EBITDA ratio of below 2x. The group also benefits from good debt protection, with an EBITDA/interest cover of well above 10x. Scope expects the group’s debt to increase somewhat in 2020, mainly driven by the 5G auctions in Hungary, which took place in March (HUF 91bn, of which HUF 54bn paid in 2020) and will again take place in 2021 with the renewal of spectrum auctions in Hungary (to be paid in 2022). Nevertheless, SaD/EBITDA is expected to remain below 2.0x. Scope assumes that the Covid-19 crisis will have a limited impact on the group, as demonstrated by H1 2020 results. The liquidity of Magyar Telekom is adequate, in particular through its financial integration in the Deutsche Telekom group.

Magyar Telekom is strongly financial integrated in the Deutsche Telekom group (cash pooling, financing). While Deutsche Telekom is more indebted, Scope deems it a remote risk that the parent company’s behaviour would adversely affect Magyar Telekom’s ability to meet contractual financial debt obligations as a going concern on time and in full.

Magyar Telekom plans to issue up to HUF 70bn senior unsecured corporate bond under the Bond Funding for Growth Scheme of the Hungarian National Bank during Q4 2020 or Q1 2021. The bond will have a seven years tenor, with 50% amortization at the end of the 6th year, and 2.5% of interest costs are assumed under Scope’s base case. The bond’s proceeds will be used for general capex (networks, spectrum).

Outlook and rating-change drivers

The Stable Outlook incorporates assumptions of increased leverage, due to spectrum auctions in Hungary in 2020 and 2021.

A positive rating action is possible if deleveraging happened faster than expected, with SaD/EBITDA reaching below 1.5x on a sustained basis.

A negative rating action is possible in case of higher dividends, higher capex (spectrum), leading to a significant increase in leverage towards 3.0x on a sustained basis.

Long-term debt rating

Reflecting our view of Magyar Telekom’s ability to meet contractual and financial debt obligations as a going concern, on time, and in full out of its operating business, we rate senior unsecured debt issued by the company at BBB+, 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 rating and/or 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: public domain, the rated entity 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: Jacques de Greling, Director
Person responsible for approval of the rating: Sebastian Zank, Executive Director
The ratings/outlooks were first released by Scope on 28 October 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.