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

Rating action

Scope Ratings GmbH (Scope) has affirmed its B- issuer rating on Jaka Trade Kft. and has revised its Outlook to Negative from Stable. Simultaneously, Scope has withdrawn the issuer rating/Outlook and has ceased analytical coverage for business reasons.

Rating rationale

Since Scope’s initial rating in February 2022, Jaka Trade has been forced to change its investment strategy following i) its failure to reach the minimum rating level necessary to issue under the MNB bond Funding for Growth Scheme; ii) the closure of the Széchenyi Investment Loan Programme in June 2022; and iii) the interest rate hike.

The company has requested to withdraw its credit ratings, as it has put all its projects on hold. The dramatic increase in the Hungarian base rate to 13% in November 2022 from 3.4% in February 2022 is the main driver of this decision.

Jaka Trade’s business risk profile suffers from the company’s small size, its associated key person risk (ESG factor: credit negative), and volatile cash flow from a highly concentrated portfolio of five properties. The company’s portfolio, while benefitting from relatively good property locations, is somewhat aged, resulting in weak key performance indicators (weighted average unexpired lease term of 1.6 years and occupancy of 73% both as at end-September 2021), limited cash flow visibility, and below peer profitability with Scope-adjusted EBITDA margins of 35%-45% (FY 2022E: 41%).

Jaka Trade’s financial risk profile has improved, as the company is no longer planning to enter a debt-funded investment phase, as originally planned. Scope expects operating cash flow to remain stable in the short term and there is no immediate need for external financing. Jaka Trade’s liquidity is weak as revenue is expected to decline in 2023 and any unexpected shocks could cause liquidity issues. However, liquidity is manageable as the company benefits from having mostly unencumbered assets (except for a retail property in Bicske). Additionally, there is no need for external financing in the short term given that all investments are on hold until interest rates normalise.

Finally, Scope revised its Outlook to Negative from Stable, reflecting limited visibility on cash generation capabilities beyond 2023, amplified by poor asset quality and mounting ESG related pressure.

One or more key drivers of the credit rating action are considered an ESG factor. 

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 Outlooks, (General Corporate Rating Methodology, 15 July 2022; European Real Estate Rating Methodology, 25 January 2022), are 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 Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
Lead analyst: Patrick Murphy, Analyst
Person responsible for approval of the Credit Ratings: Philipp Wass, Executive Director
The Credit Rating/Outlook was first released by Scope Ratings on 24 February 2022.

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
© 2022 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.