Rating action

Scope Ratings GmbH (Scope) has performed the following rating action after completing a monitoring review on the bonds issued by MOL PLC KMRP Organisation 2021-1:

MOL PLC KMRP Organisation 2021-1 Bond (ISIN HU0000361274), HUF 80bn: upgraded to BB from B+

Transaction overview

The transaction financed the acquisition of a portfolio composed exclusively of (i) MOL Plc. ordinary shares, for an aggregate amount of HUF 80bn, and (ii) Hungarian government securities, for an aggregate amount of up to HUF 8bn. The transaction facilitates the financing of an employee-backed investment scheme in MOL according to a dedicated national law (the KMRP or SESOP law) using dedicated vehicles (the KMRPs) where membership is restricted to employees and management of a company, with the majority owned by the Board of Directors of MOL Plc.

The bond is guaranteed by MFB, the Hungarian Development Bank Pr. Ltd. (MFB), for 80% of its outstanding notional amount. The guarantee is unconditional, irrevocable and the guarantor will pay on the first written request of the beneficiaries, being the bondholders. Erste Bank Hungary is the account bank and OTP Bank Plc. provides paying agent services.

The different costs of the structure, including interests on the bonds, cost of the guarantee and different fees will be paid out of (i) the interest earned on the government securities, (ii) the dividend paid by the MOL Plc. shares, (iii) a subsidy by MOL Plc. as allowed under the SESOP law, (iv) sale of the government securities or (v) sale of the MOL Plc. shares themselves. The subsidy of 2.5% of the held MOL shares p.a. will be paid to the issuer annually under the precondition that a dividend will be paid on the MOL shares in the respective year.

At or before the maturity date, the assets of the issuer will be liquidated or acquired by the members of MOL PLC KMRP Organisation 2021-1 in order to redeem the rated bonds.

The rated bonds mature in bullet repayment structure on 26 January 2032 and pay 4.95% annually.

Rating rationale

The review addressed i) the significantly improved liquidity position as of July 2023 from collected dividends, government bond investment returns and subsidies; ii) the stability of MOL Group’s stock price; and iii)) the stability of the key transaction counterparties’ credit profiles.

Beyond the key rating drivers addressed further below, the main analytical considerations on the transaction’s performance are:

Availability of liquidity (positive). The issuer has significantly increased its liquidity resources through the collections of dividends in excess of expectations and subsidies from MOL Group, as well as through returns on government bond investments and central bank deposits yielding significantly more than originally expected. The current liquidity reserves allow to cover the expected vehicle costs and bond interest for the next seven years. This also reflects well on the bond coverage from MOL stocks, as it prevents the situation that stocks would have to be liquidated to pay the issuer costs.^1,2,3

Key rating drivers

The transaction’s key rating drivers are aligned with those in Scope’s initial rating action release dated 20 January 2022.

Upside rating-change driver

An increasing value of the assets of the issuer could lead to an upgrade of the issuance rating, by creating a higher overcollateralisation between the assets and the rated liability. Such increase in assets could come either from the availability of larger liquidity amounts due to a higher-than-expected dividend payments, or the increase in the value of MOL Plc. shares.

Downside rating-change drivers

A downgrade of the rating of the guarantor would negatively impact the likelihood of a failure to indemnify the beneficiaries of the guarantee and could therefore lead to a downgrade.

A decreasing value of the assets of the issuer could lead to a downgrade of the issuance rating.

Quantitative analysis and assumptions

Scope has performed a cash flow analysis considering the asset characteristics and the main structural features. Our quantitative analysis reflects the transaction’s strong reliance on both the guarantee, the dividend payments, and the final value of the shares. We derived the bonds’ loss rate distribution from a Monte Carlo simulation of the entire structure, incorporating both revenues and costs of the issuer.

One key parameter assumption is the volatility to be assumed for our diffusion of the value of shares, where share’s returns do follow a normal distribution, in a similar fashion as in the Black & Scholes model. We looked at historical volatilities either on MOL Plc. itself or on peer companies (either the largest European Oil & Gas companies, or even more comparable CEE peers) over different horizons: one day, one year, or ten years (duration of the transaction). Several levels of volatilities were tested but the assumption corresponding to the assigned rating is 35%, a level which is in line with short-term historical volatilities. The dividend yield assumed for the duration of the transaction has been defined as a discounted yield corresponding to 50% of the sum of the expected dividend yield plus subsidy as derived from equity analysts’ consensus, which should address the exposure of the transaction to a potential non-payment of dividends in some years.

Sensitivity analysis

Scope tested the resilience of the ratings against deviations of the main input parameters: the share’s volatility and the current share price. This analysis has the sole purpose of illustrating the sensitivity of the ratings to input assumptions and is not indicative of expected or likely scenarios.

The following shows how the quantitative results change when: i) the MOL Plc. shares volatility assumption is 45%, or ii) the stock price drops by 20% immediately:

• sensitivity to volatility, one notch;
   
• sensitivity to stock price drop, one notch.

Rating driver references
1. Transaction documents (Confidential)
2. KMRP H1 2023 reporting 
3. MOL Group investor relations – dividend announcement

Stress testing
Stress testing was performed by applying Credit-Rating-adjusted volatility and dividend yield assumptions.

Cash flow analysis
Scope Ratings performed a cash flow analysis of the transaction with the use of a bespoke tool checked by a dedicated team, taking into account the transaction’s main structural features. The outcome of the analysis is an expected loss and an expected weighted average life for the bonds.

Methodology
The methodologies used for this Credit Rating, (General Structured Finance Rating Methodology, 25 January 2023; Counterparty Risk Methodology, 13 July 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.

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 Rating: public domain, the Rated Entity, the Rated Entities’ Related Third Parties, 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 this Credit Rating 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.
Scope Ratings has not received a third-party asset due diligence assessment/asset audit. Scope Ratings has performed its own analysis of the data quality, based on information received from the Rated Entity or Related Third Parties, which is not and should be not deemed equivalent to the performance of a due diligence or an audit. The internal analysis was considered when preparing the Credit Rating and it has no impact on the Credit Rating.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Rating and the principal grounds on which the Credit Rating are based. Following that review, the Credit Rating was not amended before being issued.

Regulatory disclosures
This Credit Rating is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Rating is UK-endorsed.
Lead analyst: Sebastian Dietzsch, Senior Director.
Person responsible for approval of the Credit Rating: David Bergman, Managing Director.
The final Credit Rating was first released by Scope Ratings on 20 January 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
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