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Rating action

Scope Ratings GmbH (Scope) has today assigned issuer ratings of BB/Stable to Envien Magyaroraszág Kft. and Envien International Ltd. Scope has at the same time assigned a preliminary rating of (P)BB to the proposed upcoming guaranteed bond (ISIN HU0000360193) to be issued by Envien Magyaroraszág.

Rating rationale

The rating for Envien Magyarország is derived from the corporate rating for Envien International. This reflects the implicit guarantee to Envien Magyaroraszág from Envien International, given name identity, brand responsibility, intercompany funding and Envien Magyaroraszág’s importance for the group.

The rating is supported by past and future demand generated by regulatory requirements for biofuels, a strong regional market presence in highly competitive markets and very good financial metrics. These strengths are tempered by concentration on a single product group (biofuels), moderate operating profitability due to strong competition and limited pricing room, as well as both upstream and downstream price volatility.

Envien International is a holding company for the Envien Group and provides group financing and management. Scope has based its industry risk profile on the group’s blended activities, which focus on integrated chemicals. The group’s main activities are bioethanol and bio-diesel production, with a smaller share of trade activities.

Scope rates the business risk profile at B+. This is primarily due to Envien International’s weak competitive position. Market share, while strong for a regional supplier, is limited in a more global context, with a geographical concentration on CEE. Diversification is also restricted by the concentration on a single product group (biofuels) and a moderately high degree of concentration for both suppliers and customers. While overall company finances are robust, operating profitability is moderate. Profitability is closely related to price development, which is in turn linked to feedstock prices and crude oil prices. Future development will largely be driven by national support policies requiring the use of biofuels.

Scope assesses the financial risk profile at A-. This reflects relatively low and declining Scope-adjusted debt (SaD). Scope forecasts strong leverage metrics for Envien International, with SaD/EBITDA falling below 2.0x on a sustained basis within the next 18 months. Funds from operations/SaD is forecasted to remain comfortably above 45% during the same period. Interest cover is also very strong, reflecting not only the low interest rate regime, but also relatively limited debt carried by the Envien Group. Cash flow cover is very robust, and Scope expects it to generally remain above 25% for the next few years.

Scope views liquidity as adequate. Stand-alone internal liquidity, excluding easily liquidated inventories or committed lines which are on an annual roll-over or have short termination clauses, shows a coverage of around 100% over time. In addition, the application of a forward-looking weighted average including the potential impact of inventories results in adequate liquidity with a coverage well above 110%.

Outlook and rating-change drivers

Scope sees the Outlook as Stable, based on its expectation of continued demand driven by regulatory requirements for biofuel use. Scope anticipates that relatively volatile free operating cash flow/SaD will remain subject to sharp downturns in weak years but that the metric will be 15%-25% based on a forward-looking weighted average.

A positive rating change is possible if Envien International’s financial metrics improve further. This could happen if the positive price trend in 2019-20 continues, leading to SaD/EBITDA falling below 1x on a sustained basis, and/or if mandates for biofuel use increase.

A negative rating could be driven by a change in Envien Magyarország’s ownership and/or a financial downturn for Envien International. This could be driven by a combination of steadily declining prices and persisting lower demand for biofuels, with SaD/EBITDA reaching 3.0x on a sustained basis.

Long-term and short-term debt ratings

Envien Magyarország plans to issue a HUF 5bn (approx. EUR 14m) bond (ISIN HU0000360193) under the MNB Bond Funding for Growth Scheme. The bond’s tenor is 10 years with 10% of its face value subject to amortisation in 2026, 10% in 2027, 10% in 2028, 10% in 2029, 10% in 2030 and the remaining 50% in 2031. The coupon will be fixed and payable on an annual basis. Funds from the bond will be used for capex, working capital, general corporate purposes and to increase liquidity buffers at the group level.

Envien International will issue an unconditional and irrevocable guarantee expected at around HUF 6.1bn for the full value of the bond, plus a contingency buffer to cover all costs to Envien Magyarország. The security is unconditional and unsubordinated, ranking as senior unsecured debt for Envien International. Envien Magyarország’s income will serve to fully cover the payment obligations generated by the issuance, with finance coverage from existing assets, as well as after-tax profits and profit reserves. The only trigger for the guarantee is the non-performance of Envien Magyarország.

The rating on the bond issuance is preliminary until the bond (ISIN HU0000360193) has been issued and the guarantee entered into.

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

Methodology
The methodologies used for these Credit Ratings and/or rating Outlook (Corporate Rating Methodology, 26 February 2020; Rating Methodology: Chemical Corporates, 23 April 2020) are available on https://www.scoperatings.com/#!methodology/list.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other 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 Credit Rating performance report at https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. 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 Ratings’ definitions of default and Credit 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 factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.
The Outlook indicates the most likely direction of the Credit Rating(s) if the Credit Rating(s) were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit 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 Ratings: the Rated Entity, public domain and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK endorsed.
Lead analyst: Eugenio Piliego, Director
Person responsible for approval of the Credit Ratings: Henrik Blymke, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 24 March 2021.

Potential conflicts
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

Conditions of use / exclusion of liability
© 2021 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis 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.