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Rating action

Scope Ratings GmbH (Scope) has placed the B+ issuer rating and B+ senior unsecured debt rating of Hungarian telecommunications company 4iG Nyrt. under review for a possible upgrade.

Rating rationale

On 22 August 2022, 4iG signed a non-binding agreement with Vodafone group to acquire the latter’s Hungarian subsidiary, Vodafone Magyarország Távközlési Zrt (Vodafone Hungary), in association with Hungarian state holding Cornvinus Zrt¹. The transaction as planned would have 4iG owning 51% of Vodafone Hungary while Cornvinus takes 49%, for a total consideration of HUF 715bn. The transaction is expected to close at around year end after due diligence is performed and regulatory approvals obtained. Scope notes the strong involvement of the state into 4iG via the provision of equity, loans and guarantees.

Vodafone Hungary is Hungary’s second largest telecommunications group. Last fiscal year, it reported HUF 278bn in revenues and an adjusted EBITDA of HUF 95bn. It has more than 3,000 employees serving 3m mobile customers and 0.7m fixed broadband customers.

A successful completion of the transaction would benefit 4iG’s business risk profile through Vodafone Hungary’s strong market shares in mobile and fixed broadband in Hungary and higher EBITDA margins.

Any positive impact on 4iG’s financial risk profile would be driven by the deal structure, with Cornvinus to finance much of the transaction. This would result in a materially lower leverage than in Scope’s previous rating case.

Outlook and rating-change drivers

The issuer rating is under review for a possible upgrade. Scope will closely follow developments related to the Vodafone Hungary transaction and other M&A activities by 4iG. An upgrade by a maximum of two notches could result from a stronger business risk profile and significantly improved credit metrics than in the previous rating case. Scope will resolve the review status once there is more clarity and visibility on the Vodafone Hungary transaction and its impact on 4iG. This is expected within the next few months.

Despite the expected positive developments, a negative rating action cannot be ruled out. It could be triggered by a deterioration in credit metrics as indicated by an elevated Scope-adjusted debt/EBITDA remaining significantly above 5x, e.g. due to an inability to generate a sufficient increase in EBITDA or if execution risk around recent or new acquisitions were to materialise. A negative rating action could also result from liquidity issues, e.g. caused by very sharp working capital swings.

A rating confirmation could be possible if the Vodafone Hungary deal is not completed and Scope-adjusted debt/EBITDA returns to close to 5x.

Long-term and short-term debt ratings

The current senior unsecured debt rating is based on the B+ issuer rating and an ‘average’ recovery expectation for this debt category. Driven by the rating action on the issuer rating, Scope has also placed the B+ rating for senior unsecured debt under review for a possible upgrade.
 
Rating driver references
1. 22 August 2022 4iG Press release

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

Methodology
The methodology used for these Credit Ratings and/or Outlook, (Corporate Rating Methodology, 15 July 2022), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. 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-governance/definitions-and-scales. 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://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity 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: Jacques de Greling, Director
Person responsible for approval of the Credit Ratings: Philipp Wass, Executive Director
The Credit Ratings/Outlook were first released by Scope Ratings on 30 October 2019. The Credit Ratings/Outlook were last updated on 2 December 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. Scope Ratings provided the following Other Services to the Rated Entity and/or its Related Third Parties within the two years preceding this Credit Rating action: Rating Assessment Service.

Conditions of use/exclusion of liability
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