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Rating action

Scope Ratings GmbH (Scope) has today affirmed the BB-/Stable issuer rating of Duna Aszfalt Zrt. Concurrently, Scope has downgraded the rating of the issuer’s senior unsecured debt category to BB- from BB.

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). Duna's unchanged business risk profile is supported by an expanding geographical reach, although concentration risk remains due to inherent structural constraints.

Although Duna continues to expand internationally, including into neighbouring countries such as Poland, Romania and the Czech Republic and particularly through its large investment in the GED Africa toll road project, its competitive position remains vulnerable due to continued reliance on Hungarian public procurement. These factors, alongside Duna’s limited segmental breadth and the exposure to sovereign risk in the GED Africa project, threaten its ability to grow sustainably and maintain stable cash flows.

Duna reported robust financial results for 2024, achieving revenues of HUF 300bn (EUR 758m) and Scope-adjusted EBITDA* of HUF 64bn (EUR 161m). These figures (pro-forma) including Duna Polska (formerly Motal Engil Central Europe), acquired in Q3 2024, increased to HUF 359bn and HUF 67bn respectively. Duna expanded further in 2025 through the addition of Euro Strada (Romania) and VALCANO (Czech Republic), which had HUF 31bn in revenue in 2024. While these moves have improved geographic diversification, with non-domestic sales expected to remain above 20%, the group remains heavily concentrated in Hungary and reliant on public contracts, which account for around 75% of sales and backlog.

The company’s consolidated order backlog remains robust at HUF 1,200bn (3.3x average revenue over the last three years). However, new order intakes in Hungary decreased by 60% YoY to HUF 235bn, reflecting tighter public budgets and delayed EU funding. Since its acquisitions in September 2024, Duna Polska has only contributed HUF 12bn of new order intake due to strategic and profitability challenges. Although the group's profitability remains good, with the EBITDA margin at 21% in 2024 (excluding non-consolidated Duna Polska) and supported by vertical integration, Scope anticipates margin pressure once the less-profitable Duna Polska is consolidated and due to external risks. External risks include regulatory pressure from the EU and legal action against Hungary regarding concessions granted to firms co-owned by Duna’s ultimate beneficial owner. Duna performs the repair and maintenance on these concessions. Consequently, Scope believes that Duna's sustainable EBITDA margin will be around a moderate 14%.

Financial risk profile: BB+ (unchanged). Duna’s financial risk profile remains unchanged, as the anticipated increase in leverage resulting from debt-funded investments (notably the African venture) is counterbalanced by robust interest coverage and strong liquidity. This mitigates the impact of more volatile free operating cash flow (FOCF) resulting from anticipated reduced profitability, a concentrated backlog and execution risks.

Scope expects FOCF to remain positive, albeit more volatile, due to margin dilution, particularly from the acquisition of Duna Polska, as well as from a concentrated backlog. Top projects account for 55%–75% of secured revenues in 2025–2026, which creates an increased risk of top-line volatility in case of execution delays. This will put pressure on FOCF in the coming years. Execution and sovereign risks tied to the African venture exert further challenges, though this is largely mitigated by expected protective contractual features and Duna’s robust internal cash generation.

In 2024, debt reached HUF 100bn, up from HUF 12bn YoY. The increase was primarily due to additional financing to acquire Duna Polska and the substantial rise in advances received for large construction projects. As a result, debt/EBITDA rose to 1.6x (up 1.4x YoY), while funds from operations/debt fell to 61%. By the end of 2025, Scope expects debt to reach HUF 210bn, pushing leverage to a peak of 3.0x–3.5x and reducing funds from operations/debt to 20%–25%. The further increase in debt will be driven by debt-funded investments, particularly the USD 400m bond to be issued to finance the African toll road venture. Scope expects leverage to remain stable, supported by sufficient internal cash generated from signed orders and the low likelihood that legal or regulatory risks materialise into the medium term.

Debt protection as measured by EBITDA interest coverage remains robust, with interest income well exceeding the costs to service debt in 2024. However, Scope expects coverage to decline to 7x–10x due to rising financial expenses from debt-driven growth and falling deposit rates. Nevertheless, excess cash from the project financing in Africa, as well as Duna’s hedging policy for this investment, will help offset this in the short term.

Liquidity: adequate (unchanged). Liquidity is adequate and benefits from a backloaded debt maturity profile comprising a HUF 30bn bond with a bullet maturity in 2029 and the upcoming USD 400m bond issuance (linear amortisation starting in 2029; final maturity in 2035). The group’s accessible cash balances stood at HUF 35bn at end-2024. Marketable securities (treasury bills) of HUF 50bn as at end-2024 as well as anticipated positive FOCF further enhance liquidity.

Duna Aszfalt’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 30bn) if the debt rating of the bond stays below B+ for more than two years (grace period) or drops below B- (repayment within 90 days). Such a development could adversely affect the company’s liquidity profile. The current rating is one notch higher than the minimum required, and two notches above the level at which the grace period would be triggered.

In addition to the rating-related covenant, other covenants include a maximum dividend payment of 30% of EBITDA if the debt rating deteriorates below B+.

Supplementary rating drivers: credit-neutral (unchanged). Although supplementary rating drivers are credit-neutral, Scope's assessment of the company's business and financial risk profiles reflects regulatory and reputational risks (credit-negative ESG factor) given i) Duna's heavy reliance on government tenders, which have helped to build its market position; and ii) its lack of a tier-one auditor despite its size and international expansion.

In addition, Scope recognises the potential of a higher risk appetite given the increased expansionary spending. However, Scope understands that the company is not planning any further major or transformational acquisitions, nor any spending on ventures other than the African project.

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

Outlook and rating sensitivities

The Stable Outlook reflects Scope’s expectation that the issuer can successfully integrate Duna Polska’s operations, and that credit metrics will remain at levels commensurate with the assigned rating. This includes debt/EBITDA below 3.5x and EBITDA interest coverage above 7x, considering a substantial increase in gross debt. This is because the company will utilise its balance sheet headroom after a long history of being under-leveraged and despite increased volatility in cash generation due to i) the chunky order backlog; ii) potential changes in Duna's competitive environment; and iii) declining operating profitability, with acquired companies diluting the currently good EBITDA margin. The Outlook further reflects the expectation that the African project will be delivered on time and within budget, however, with no operational cash flow from it in the forecast horizon.

The upside scenario for the ratings and Outlook is:

1. Significantly improved diversification of the order book by customers, segments, geographies and projects as well as debt/EBITDA maintained below 3.0x (remote scenario)

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

1. Debt/EBITDA of above 3.5x on a sustained basis
    
2. Reduced visibility of cash flow from European activities, as evidenced by a backlog of below 2x

Debt rating

Scope has downgraded the rating for the senior unsecured debt category to BB-, now in line with the issuer rating. This reflects an average recovery driven by diminishing recovery expectations linked to the expected issuance of significant secured debt that ranks ahead of the unsecured debt. The downgrade is also due to the risk that senior secured debt increases if the issuer’s credit quality deteriorates (volatility of the capital structure and the proportion of senior unsecured debt).

The recovery calculation considers the HUF 30bn senior unsecured corporate bond issued under the Bond Funding for Growth Scheme of the Hungarian National Bank. Scope assumes i) the execution of the business plan being financed by around HUF 160bn of additional secured debt; ii) 5% of payables ranking senior to the bond and 95% at the same seniority; and iii) advances received ranking at the same seniority as the bond, based on a local legal opinion. The recovery analysis is based on an estimated liquidation value of HUF 254bn for a hypothetical default in 2027, based on an appropriate haircut on the assets and reflects liquidation costs of 10% on the assets.

Environmental, social and governance (ESG) factors

Scope deems regulatory and reputational risks to be a negative ESG factor. Scope believes that Duna’s market position in recent years was gained by winning state tenders thanks to the company’s established credentials on projects with state-owned companies. State tenders account for around 75% of Duna’s backlog as at end-June 2025, which creates a high dependency.

Further, Scope would have expected the company, given its size, to use a tier-one auditor or a provider with a global presence. Instead, Duna relies on a local auditor with limited market presence and reach, which, even with its 30 years’ experience, raises concerns about the effectiveness and reliability of the audit going forward given Duna’s recent expansion outside of Hungary.

All rating actions and rated entities

Duna Aszfalt Zrt.

Issuer rating: BB-/Stable, affirmation

Senior unsecured debt rating: 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, (General Corporate Rating Methodology, 14 February 2025; Construction and Construction Materials Rating Methodology, 24 January 2025), are available on 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 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 scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA):registers.esma.europa.eu/cerep-publication/. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at 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 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: Philipp Wass, Managing Director
Person responsible for approval of the Credit Ratings: Sebastian Zank, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 6 September 2019. The Credit Ratings/Outlook were last updated on 10 October 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
© 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. Public Ratings are generally accessible to the public. Subscription Ratings and Private Ratings are confidential and may not be shared with any unauthorised third party.