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Rating action

Scope Ratings GmbH (Scope) has today affirmed the BB- issuer rating of Hungarian construction company KÉSZ Holding Zrt. (KÉSZ), while maintaining the Negative Outlook. At the same time, Scope has downgraded to BB- from BB the rating of the senior unsecured guaranteed bonds issued by KÉSZ Holding Zrt. (ISIN: HU0000360466; ISIN: HU0000360870), both guaranteed by its subsidiaries KÉSZ Építő Zrt., KÉSZ Ipari Gyártó Kft. and Matech Magyar Technológiai Kft.

The affirmation of KÉSZ’s BB- issuer rating reflects the stabilisation of operations despite a decline in topline revenue and the expectation of moderate growth in 2025. A strong cash position supports financial flexibility despite market challenges. The Negative Outlook reflects uncertainty in KÉSZ’s financial risk profile due to weaker revenue visibility from 2026, ongoing legal proceedings, and a challenging macroeconomic environment. While international expansion and a focus on specialised construction enhance resilience, these efforts may not fully offset medium-term risks.

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). The business risk profile reflects KÉSZ Holding’s stable market position, ongoing geographical diversification, and focus on profitability through higher-margin projects.

Market share remains unchanged, with KÉSZ maintaining a strong position in the Hungarian construction sector. After a record year in 2023, when net sales reached HUF 234.7bn, 2024 was a more normalised year, with net sales standing at HUF 182.5bn. This fell below KÉSZ’s own forecasts, as almost HUF 20bn of project revenue was delayed and subsequently carried over into 2025. The group remains committed to prioritising profitability over volume, focusing on specialised construction works with higher margins and optimising its organisation.

Geographic diversification remains weak but continues to improve. In 2025, approximately 24% of revenue is projected to be generated outside Hungary, up 3pp from 2024, reflecting a steady increase on last year and a significant improvement from the 6% recorded in 2023. This marks a strategic shift from KÉSZ’s previously Hungary-centric focus, with expansion underway in Romania (HUF 50bn of contracted projects), Ukraine (HUF 13bn), and Germany (HUF 7bn). The company is also making progress in the US, where it successfully handed over its first project in February 2025 and recently secured a new contract. In 2024, the group generated HUF 38.6bn in revenue outside Hungary, a significant increase from HUF 9.0bn in 2022, reflecting its ongoing efforts to diversify. However, the company’s revenue base remains concentrated in Hungary, underscoring the need for continued diversification.

Profitability improved in 2024, with the Scope-adjusted EBITDA margin* rising to 6.3% (2023: 5.3%), supported by easing inflation and stabilising raw material costs. Meanwhile, net sales in 2025 are expected to remain broadly in line with 2024, with a stronger focus on profitability. Profitability is forecast to remain in the 5.5%-6.0% range through 2027, benefiting from a more predictable cost environment that should reduce the risk of loss-making projects – though recent disruptions to global trade and broader macroeconomic conditions could still pose challenges. Higher-margin segments – such as steel structure manufacturing, technological and electrical implementation, and building structure solutions – now account for 22% of the backlog in 2025 (2024: 19%; 2023: 12%), yet the lack of visibility beyond the next 12 months continues to constrain the rating.

This forecast appears realistic and achievable, with HUF 164bn (80%) already contracted as of March 2025, of which HUF 20bn stems from the energy sector. Additionally, revenues could be higher if the company successfully executes its own developments – primarily a residential project in Bucharest – though this remains subject to execution risk, market conditions, and the evolving macroeconomic environment in Europe.

KÉSZ’s backlog, excluding energy revenues, has weakened slightly to 1.2x the average revenue of the last three years (2024: 1.3x), reflecting the company’s shift towards fewer but more profitable projects. The current backlog remains concentrated, with the top 10 projects accounting for 55% as of March 2025 (March 2024: 52%), an increase that underscores reliance on a limited number of contracts. However, this is somewhat mitigated by a focus on niche projects with higher profitability margins and contracts from large established corporations. The share of private sector orders on hand remains high, exceeding 90%.

Financial risk profile: BB- (unchanged). KÉSZ’s financial risk profile reflects stable debt levels, manageable debt protection metrics, and the expectation of negative free operating cash flow (FOCF) in the medium term due to ongoing investments. While leverage remains elevated, the group benefits from long-term fixed-rate debt and improved debt structure stability.

Debt/EBITDA (incl. partial cash netting) deteriorated to 3.3x at YE 2024 (YE 2023: 2.7x), as EBITDA of HUF 11.4bn fell below forecasts. Interest-bearing gross debt remained stable at HUF 58.5bn at YE 2024, with no significant repayments due until 2026, when the first bond repayments are scheduled to begin. However, visibility on 2026 revenue is limited, as only HUF 61bn (around 30% of planned revenue) was contracted as of March 2025 – posing a risk to future cash flow generation. The company aims to maintain a cash buffer of around HUF 10bn in 2025 following the completion of its capex projects. Funds from operations continued to benefit from non-recurring income from financial operations, though these gains are projected to phase out, leading to a stabilisation of funds from operations/debt at around 20% between 2025 and 2027.

Interest cover remained stable in 2024, supported by the high proportion of fixed-rate debt, and is expected to hold steady in 2025. However, without improved revenue visibility, interest coverage could weaken beyond 2025. As of YE 2024, HUF 38.7bn in bonds (66% of total debt) carried a fixed rate of 3.2% with an average maturity of 6.6 years. The remaining HUF 19.4bn in bank debt (YE 2023: HUF 18.8bn) is fully variable-rate, though its composition has shifted. Short-term debt declined to HUF 3.3bn (YE 2023: HUF 6.9bn), while long-term debt increased to HUF 16.1bn (YE 2023: HUF 11.4bn), improving debt structure stability and reducing near-term refinancing risk. Of the total bank debt, HUF 15.0bn is denominated in euros, introducing foreign-exchange and interest rate variation risks. The largest variable facility, a HUF 7.1bn loan drawn in Q3 2023, carries a 2.9% spread over 3M EURIBOR (2.52%) and matures in 2033. The foreign-exchange risk is partly mitigated by 60% of the order backlog being euro-denominated. Additionally, with central banks reducing interest rates since 2024, the risk of higher debt servicing costs has declined.

FOCF will remain constrained by ongoing capex. The group plans to invest HUF 16.7bn in 2025, followed by HUF 4.2bn in 2026 and HUF 3.6bn in 2027, with major allocations including HUF 4.7bn for Greenergy Zrt., HUF 4.8bn for the Tilia project, HUF 3.6bn for a new Industrial development, and HUF 2.4bn for land acquisitions. FOCF is expected to remain negative in 2025 before recovering in 2026 with cash inflows from large-scale Romanian developments. While cash flow cover is projected to stay negative in the medium term, the group has limited additional financing needs, with clients providing advance payments of 10–20% of contract values to support liquidity.

Liquidity: adequate (unchanged). KÉSZ’s liquidity remains adequate, with available sources covering near-term obligations. As at YE 2024, the company had HUF 33.1bn in cash (of which HUF 25.3bn is deemed unrestricted) and HUF 13.7bn in undrawn credit lines, of which HUF 4.5bn is committed for more than one year. These sources sufficiently cover expected uses, including HUF 4.8bn in short-term debt and a projected negative FOCF of HUF 7.7bn in 2025. FOCF is expected to turn positive from 2026 onwards, once key investment projects are completed and sold, particularly large-scale developments in Romania. This will further strengthen the group’s liquidity position over the medium term.

Scope highlights that KÉSZ’s guaranteed senior unsecured bonds issued under the Hungarian National Bank’s Bond Funding for Growth Scheme have a covenant requiring the accelerated repayment of the outstanding nominal debt amount (HUF 33bn) if the debt rating of the bonds 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 group’s liquidity profile. The rating headroom to entering the grace period is two notches. Scope therefore sees no significant risk of the rating-related covenant being triggered. In addition to the rating deterioration covenant, other covenants include (i) change of control, (ii) maximum dividend 50% of the profit before taxes, and (iii) consolidated net debt/EBITDA above 4x in the last three years of the bond tenor.

Supplementary rating drivers: credit-neutral (unchanged). Supplementary rating drivers have no impact on the issuer rating. However, KÉSZ remains engaged in an ongoing legal dispute with Duna Terasz Grande (DTG) over the termination of a general construction contract for a large-scale residential development in Hungary. DTG terminated the contract in January 2024, citing project delays and alleged failure to meet agreed construction standards.

Both parties have filed competing legal claims, introducing financial, operational, and reputational risks, particularly regarding liquidity, working capital, and future project tenders. KÉSZ has booked a HUF 2.8bn provision for the dispute, and while the outcome remains uncertain, the overall impact on the group is expected to be manageable. Should the resolution be unfavourable, KÉSZ is expected to absorb any financial impact without materially weakening its financial risk profile, provided it delivers on its other projects, maintains profitability, and sustains stable operations.

Outlook and rating sensitivities

The Outlook remains Negative, reflecting the uncertainty surrounding KÉSZ's financial risk profile, with continued risk of debt/EBITDA exceeding 4x, driven by weaker revenue visibility from 2026 onwards, ongoing legal proceedings, and a challenging macroeconomic environment. The Outlook also reflects Scope's expectation that FOCF will turn positive after 2025 following the completion of the investment phase, which will allow the company to actively deleverage.

The upside scenarios for the ratings and Outlook are (collectively):

1. Order backlog consistently above 1x.
    
2. Debt/EBITDA (including netting of cash seen as permanent) staying below 4.0x.
    
3. FOCF turning positive from 2026 onwards.

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

1. Order backlog at or below 1x.
    
2. Debt/EBITDA (including netting of cash seen as permanent) at or above 4.0x.
    
3. FOCF remains negative for a prolonged period.

Debt ratings

In June 2021, KÉSZ issued a HUF 22bn senior unsecured bond (ISIN: HU0000360466) through the Hungarian Central Bank’s Bond Funding for Growth Scheme. This was followed by a second issuance of HUF 11bn senior unsecured bond (ISIN: HU0000360870) in November 2021 under the same scheme. Both instruments are guaranteed by KÉSZ Építő Zrt., KÉSZ Ipari Gyártó Kft. and Matech Magyar Technológiai Kft., all subsidiaries of the issuer. The proceeds of the bonds were used to support the group’s working capital financing needs and to secure long-term funding for group-wide expansion plans. Both instruments have a tenor of 10 years, with the HUF 22bn bond having a fixed coupon of 2.8% and the HUF 11bn bond having a fixed coupon of 4.1%. The repayments of both instruments are structured in five tranches starting from 2026, with 10% of the face value payable yearly, and 50% balloon payment at maturity.

Scope’s recovery analysis is based on a hypothetical default in 2026, which assumes outstanding senior unsecured debt of HUF 29.1bn, in addition to HUF 17.8bn in bank loans, HUF 3.5bn for an unsuccessful resolution with DTG, HUF 46.9bn in payables, provision and other financial obligations, assuming the group draws on available overdrafts. The recovery assessment results in an ‘average’ recovery for senior unsecured guaranteed bonds (ISIN: HU0000360466, ISIN: HU0000360870). As such, the rating has been downgraded to BB-, from BB, equal to the underlying issuer rating. Any potential additional uplift is constrained by the risk and the possibility that senior secured debt will increase in the path to default.

Environmental, social and governance (ESG) factors

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

All rating actions and rated entities

KÉSZ Holding Zrt.

Issuer rating: BB-/Negative, affirmation

Senior unsecured (guaranteed) debt instrument rating (ISIN: HU0000360466; ISIN: HU0000360870): BB-, downgrade,

*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, (Construction and Construction Materials Rating Methodology, 24 January 2025; General Corporate Rating Methodology, 14 February 2025), 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 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: Patrick James Murphy, Analyst
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 30 March 2023. The Credit Ratings/Outlook were last updated on 4 April 2024.

Potential conflicts
See 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
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