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 BB/Stable issuer rating on Hungary-based investment holding company Opus Global Nyrt. Scope has also affirmed its BBB- senior unsecured debt rating.

Rating rationale

The ratings continue to reflect Opus’ strong financial risk profile and total cost coverage, supported by its sound liquidity policy during its previous transition phase, which included active M&A in its energy division. Despite some deterioration in credit metrics in 2022 due to acquisition-related debt and a significant drop in dividend from its industrial division (down 40% YoY), the holding’s financial risk profile is still strong. The ratings benefit from Opus’ strong credit metrics, especially total cost coverage, which was still significantly ahead of negative ratings trigger in 2022. They continue to reflect Opus’ conservative and long-term buy-and-build investment approach, focused on creating growth and value by exercising active operational control at subsidiary level.

The holding is still relatively resilient to macroeconomic downturns, such as those triggered by the Covid-19 crisis and the Russia-Ukraine war.

The ratings are held back by portfolio sustainability due to high concentration risk in recurring income generation, which continues to be very high, reflecting the non-industrial divisions’ inability to pay dividends. This also applies to Hunguest (Opus’ main tourism company), despite significant progress in terms of sales and EBITDA margin expansion in the past two years. Opus has improved its portfolio diversification as the sizable energy segment now provides a more balanced asset value diversification than about three years ago when the holding’s portfolio was largely concentrated on two segments (industrials and food processing). In addition, the recent transaction involving the minority buyout of Viresol (from Duna Aszfalt and Talentis) has further strengthened the holding’s portfolio diversification by sector.

Opus’ exposure to four distinct and relatively non-cyclical and little-correlated sectors supports the holding’s business risk profile (assessed BB-) as evidenced by its strong performance in the past two crisis-prone years. A strong recovery of demand after the Covid-19-related weakness in 2021 allowed a robust performance against the difficult macroeconomic backdrop. Some portfolio companies were able to increase selling prices in 2022, especially in the tourism and food processing divisions.

In 2023, management plans to focus on integration and consolidation. Scope is concerned about frequent changes in top management at Opus (latest: end-2022), which were not previously flagged and may impact governance transparency (ESG factor). This does not affect the rating in a negative way at this time.

The ratings reflect the still more-than-sufficient cushion that Opus’ financial risk profile (assessed BBB-) provides for the ratings, even after the significant deterioration of total cost coverage in 2022. Scope projects the ratio to remain at 2x-3x in the near future due to increased holding costs related to management's new strategy of centralising more service and financial functions at the holding level. This cost increase is likely to largely neutralise the expected recovery in dividends received in 2023. While total cost coverage declined YoY in 2022, the loan-to-value ratio (LTV) could be kept stable in 2022 compared to 2021 at about 40%, due to increased net investment values in the holding's main participations. This in turn balances Scope-adjusted debt from recent transactions, which resulted in Opus taking on about HUF 24bn of additional payment obligations (mainly Viresol minority buyout) in 2022 and 2023.

Opus' financial risk profile is supported by its solid total cost coverage ratio, despite weaker leverage. Opus’ however still relatively low leverage is partly due to its conservative net asset calculation based on book values and does not threaten the ratings as Scope continues to consider total cost coverage ratio as the main driver of the financial risk profile. While Opus’ total cost coverage continues to benefit from the absence of dividend payments to its shareholders, the holding's total income generation is heavily reliant on construction companies' dividends, which accounted for over 75% of total recurring income in 2022. Scope expects some diversification in dividend receipts from other portfolio companies – most likely from the energy division, albeit with low values. Some portfolio companies are still not permitted to pay back interest to Opus due bank restrictions.

One or more key drivers for the credit rating action are considered ESG factors.

Outlook and rating-change drivers

The Stable Outlook incorporates a rating case of a broadly unchanged investment portfolio over the next one or two years, no dividend payments to Opus’ shareholders, a focus on developing the existing portfolio and no major M&A activity (other than the already envisaged transactions in the food division) as well as a total cost coverage of significantly above 1.0x.

A positive rating action may occur if the holding's business risk profile improved, particularly with regard to concentration risks related to dividend income. However, Scope does not foresee any material changes in this regard in the short-to-medium term.

A rating downgrade could be triggered by total cost coverage being sustained below 1.0x.

Long-term debt rating

The rating for senior unsecured debt has been affirmed at BBB-, two notches above the issuer rating, reflecting superior recovery prospects.

Scope performed a recovery assessment for the senior unsecured debt category. For this assessment, Scope constructed a hypothetical default scenario, derived a liquidation value and then compared it with the now increased volume of senior unsecured debt (namely the company’s two bonds) in order to determine its recovery rate. For Opus, Scope calculated a superior recovery of the senior unsecured debt positions, mainly supported by very little secured bank debt ranking ahead, and the comparatively high market value of portfolio companies. Even discounting this value by 50% and adding guarantees and suretyships of about HUF 45bn, senior unsecured debt is likely to be recovered.

Scope’s assessment assumes no cross-default clauses in the portfolio companies’ debt documentation.
 
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 Outlooks, (General Corporate Rating Methodology, 15 July 2022; Investment Holding Companies Rating Methodology, 19 May 2023), 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, the Rated Entities' Related Third Parties 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 Outlooks and the principal grounds on which the Credit Ratings and Outlooks are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlooks are UK-endorsed.
Lead analyst: Olaf Tölke, Managing Director
Person responsible for approval of the Credit Ratings: Sebastian Zank, Managing Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 29 August 2019. The Credit Ratings/Outlooks were last updated on 29 March 2022.

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

Conditions of use/exclusion of liability
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