Scope places 4iG's B+ issuer rating under review for possible upgrade
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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.
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.
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.
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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.
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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.
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