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Rating action

Scope Ratings GmbH (Scope) has today affirmed the B/Stable issuer rating on Szinorg Universal Zrt. (Szinorg). Scope has also affirmed its B+ rating for the senior unsecured debt category.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

Business risk profile: B (unchanged). Szinorg’s business risk profile continues to be affected by the group’s small scale in a European context, which limits diversification and weakens the ability to mitigate economic cycles and benefit from economies of scale. Scope recognises some improvement in diversification, following the development of a diverse real estate portfolio, including the Bajcsy/Mercure Hotel in Debrecen and various residential and industrial projects, which partially mitigates cyclicality risks.

Szinorg’s preliminary EBITDA figures for 2024 show an increased share of recurring income from its real estate portfolio, with a contribution of 35% in 2024, that is expected to continue to rise given both the new project pipeline and the downturn in construction through 2026. As of end-December 2024, the portfolio of finished assets includes the Bajcsy/Mercure Hotel, which opened in August 2022, and two industrial properties encompassing 23,000 sq m of gross lettable area (Szinorg owning 50% of these properties). These industrial assets are fully occupied and leased on a long-term basis (with a weighted average unexpired lease term of 9 years as of December 2024), helping to keep Szinorg's recurring income relatively stable and partially offsetting the highly cyclical nature of the construction business.

Preliminary figures for the end of December 2024 indicate that Szinorg's revenues reached approximately HUF 22bn, representing a 12% YoY decline. This decrease can be primarily attributed to reduced construction activity, aligning with the broader economic downturn. Despite the overall stressed construction market, the industrial boom in Debrecen has partially offset the impact, resulting in a higher volume of local projects. The Scope-adjusted EBITDA* for 2024 is forecasted to decrease by 45% YoY to HUF 1.7bn from HUF 3.1bn in 2023, primarily due to changes in provisions between 2023 and 2024, resulting in a margin deterioration of almost 5 percentage points to 7.7% in 2024 from 12.2% in 2023. The margin was partially supported by higher construction margins and improved accommodation performance, with hotel occupancy rates rising above 70%.

Scope expects Szinorg’s profitability margin to improve in 2025, reaching above 12%, primarily driven by a one-time exit revenue from a real estate asset. Without this transaction, Szinorg's EBITDA margin would deteriorate to close to 5% in 2025, constrained by the challenges of its construction business, which faces increased competition and operates with historically lower margins. Nevertheless, the company’s margin will continue to be supported by its higher-margin recurring businesses: hotel operations (averaging around 27%) and letting activities (with average margins of 80%). The latter also provides enhanced visibility on future cash flows, underpinned by long-term lease agreements. As part of its growth strategy, Szinorg plans to construct a new logistics hall in 2025, which is expected to double the contribution of letting activities by 2026. Additionally, the company intends to refurbish and operate a new hotel, further strengthening the contribution of its hotel operations to overall profitability in 2026.

The backlog, however, remains concentrated, with the top three and ten projects accounting for 64% and 95% of future contracted revenues, respectively. There is a persistent cluster risk in the order backlog, as the most significant project related to the residential development in the Balaton Lake region which the company plans to start construction in late 2025, with a planned handover by year-end 2027. Such concentration carries the risk of considerable cash flow volatility if projects are delayed or cancelled.

Financial risk profile: B+ (unchanged). Szinorg’s financial risk profile is constrained by Scope’s expectation of higher leverage and negative free operating cash flow. This is attributed to increased working capital needs and the substantial investment in the real estate portfolio. Scope expects that while the real estate portfolio, along with the construction backlog, will continue to strengthen revenues and cash flow, credit metrics will come under pressure over the next few years. The funding for the business plan includes the HUF 5bn senior unsecured bond issued under the Hungarian National Bank’s Bond Funding for Growth Scheme and bank loans. As of December 2024, the bank loans totalled HUF 2.7bn. The group plans to add further loans of about HUF 8.6bn in the period to 2026. This increase in loans stems from the planned Mercure Debrecen refinancing (HUF 3bn equivalent loan, binding offer received in December 2024) and the planned logistics hall development (HUF 5.6bn equivalent loan). As a result, Scope anticipates an increase in leverage (debt/EBITDA) to above 11x by the end of 2026. This projected increase in leverage is due to upcoming real estate developments and their deferred contribution to EBITDA.

The interest result was positive in 2024, supported by income from investments in securities and low debt expenses, as the HUF 5bn bond carries a fixed rate of 3%. Scope anticipates that the interest result will turn negative in 2026, given the higher debt burden. Floating rates on the loans also expose the group to potential fluctuation in the Euribor rate although majority of current debt is fixed (88%).

Liquidity: adequate (unchanged). Liquidity is adequate and benefits from cash sources of approximately HUF 9.9bn of cash and equivalents as of December 2024, alongside available overdrafts totalling HUF 2.2bn. The debt maturity profile is back loaded, featuring a HUF 5.0bn bond maturing only in 2030, with no significant repayments required prior to that date. Nonetheless, external liquidity will be necessary to finance capex and working capital requirements.

Scope highlights that Szinorg’s senior unsecured bond issued under the Hungarian National Bank’s Bond Funding for Growth Scheme has a covenant requiring the accelerated repayment of the outstanding nominal debt amount (HUF 5bn) if the debt rating of the bond stays below B+ for more than two years (grace period) or drops below B- (accelerated repayment within 30 days). Such a development could adversely affect the company’s liquidity profile. The rating headroom to entering the grace period is 0 notches.

Given the limited rating headroom, the company must at least maintain its current credit profile to avoid triggering the rating-related covenant.

Supplementary rating drivers: credit-neutral (unchanged). The rating has no adjustments related to financial policy, peer group considerations, parent support, or governance and structure.

Outlook and rating sensitivities

The Stable Outlook reflects the improved share of contribution of real estate asset in the group’s EBITDA, which strengthens the company’s recurring income base and partially mitigates the volatility related to the strained construction business. The real estate assets deliver higher profitability margins, which should also counterbalance the margin of construction activities that are expected to remain under pressure. Additionally, the Outlook incorporates the one-time exit revenue from a real estate asset, a new accommodation project, and the expansion of the group’s industrial halls. The Outlook also assumes ongoing adequate access to external financing to finance the company’s business plan.

The upside scenarios for the ratings and Outlooks, while considered remote at present, are (collectively):

1. Improved business risk profile, with a significantly larger development pipeline including a backlog of more than one year and improved diversification (by customer and project).
    
2. Debt/EBITDA remained at around 4x, enabled by a higher-than-anticipated recurring EBITDA contribution from the issuer’s investment properties.

The downside scenarios for the ratings and Outlooks are (individually):

1. Backlog of below 1x.
    
2. Liquidity worsens, for example, through significant delays in customer payments or non-recoverable cost overruns in projects.

Debt ratings

The rated entity issued a HUF 5.0bn senior unsecured corporate bond (ISIN HU0000359633) in 2020. Scope’s recovery analysis is based on a hypothetical default scenario in 2026, which assumes outstanding senior unsecured debt of HUF 5.0bn, additional bank loans of HUF 12.9bn, with available overdrafts fully drawn overdrafts of HUF 2.2bn. The recovery assessment results in an ‘above-average‘ recovery for senior unsecured debt, which translates into a B+ rating, one notch above the underlying issuer rating. The risk that the amount of senior unsecured debt increases on a path to default constrains the uplift.

Environmental, social and governance (ESG) factors

Overall, ESG factors have no impact on this credit rating action.

All rating actions and rated entities

Szinorg Universal Zrt.

Issuer rating: B/Stable, affirmation

Senior unsecured debt rating: B+, affirmation

*All credit metrics refer to Scope-adjusted figures.

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 Outlook, (General Corporate Rating Methodology, 16 October 2023; Construction and Construction Materials Rating Methodology, 24 January 2025; European Real Estate Rating Methodology, 28 March 2024), 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 Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With the Rated Entity or Related Third Party participation    YES
With access to internal documents                                        YES
With access to management                                                  YES
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 these 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 and/or Outlook 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: Michel Bove, Director
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 25 February 2020. The Credit Ratings/Outlook were last updated on 1 February 2024.

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, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
© 2025 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Innovation Lab 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.