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Rating action

Scope Ratings GmbH (Scope) has affirmed the BB-/Stable issuer rating of Hungarian construction company ÉPKAR Zrt. Scope has also affirmed the company’s BB senior unsecured debt rating.

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). ÉPKAR’s business risk profile remains supported by its solid position in the Hungarian construction sector and incremental diversification into commercial real estate through the R70 office building which provides a steady flow of rental income.

Despite operating exclusively in Hungary – with around 40% of projects in Budapest and the remainder across the country – the issuer’s substantial order backlog of HUF 155bn (EUR 390m) as of Q3 2025, covering roughly five years of work, provides enhanced revenue visibility and supports operational planning. This backlog includes a share in the ASE Paks 9010 nuclear power plant consortium, a major infrastructure project that is anticipated to drive revenue from late 2026.

The domestic construction market remains subdued, with a sector-wide contraction in 2025 primarily affecting civil engineering. However, the gradual restart of government-funded infrastructure projects and resilient private-sector demand are anticipated to support a recovery from 2026. ÉPKAR continues to rebalance its revenue mix toward private clients – projected at 64% of 2025 revenue (2024: 45%) – which reduces dependency on delayed or discretionary public procurement.

ÉPKAR’s diversification into property investment via the R70 office building remains credit-positive, with occupancy rates improving to 88% in August 2025 (79% in August 2024) and a weighted average unexpired lease term of around 38 months. Rental activities contribute roughly 10% to EBITDA, partly offsetting construction volatility.

Operating profitability, as measured by the Scope-adjusted EBITDA* margin, declined to 9.0% in 2024 (down 9pp YoY) due to intensified price competition, elevated personnel costs, and administrative delays related to Ukraine war-induced contract adjustments. However, Scope expects margins to recover to around 10% from 2025, supported by backlog execution and steady recurring income from rental operations. While below historical highs, margins are expected to remain resilient under challenging industry conditions.

Financial risk profile: BBB (unchanged). ÉPKAR’s financial risk profile remains robust, supported by substantial cash holdings, conservative leverage and strong debt service capacity.

Leverage, measured by debt/EBITDA, rose to 3.2x in 2024 (2023: 2.3x; 2022: 1.2x), mainly due to lower margins from price competition and cost inflation. With ongoing stable free operating cash flow (FOCF) leverage is projected to improve to around 2.5x in 2025 and to below 2.0x by 2027, underpinned by a strong order backlog, normalised costs, stable rental income from the R70 building and lower guarantee requirements. Scope notes that its leverage calculations incorporate a 50% cash haircut to account for fluctuations in cash balances throughout the year.

Funds from operations/debt is expected to normalise at around 45% over the forecast period, following strong levels of accrued income related to contract adjustments stemming from the war in Ukraine (2024: 82%, up 44pp YoY). The metric shows limited risk of medium-term deterioration, although the sector’s cyclicality introduces some uncertainty. Nonetheless, ÉPKAR’s long-standing client relationships, reputation for reliable project delivery, and the increased value and rental income of the R70 asset (valued at HUF 19.1bn as of August 2024) partly mitigate downside risks.

Interest coverage remains very strong, with net positive interest income supported by high liquidity and limited leverage. This trend is expected to continue given the issuer’s cash reserves and returns from invested assets. The only interest-bearing debt is the HUF 11bn bond, fixed at 3%, with no amortisation until 2027. Scope forecasts that interest coverage will remain comfortably above 10x or net positive, supported by FOCF, which will help reduce leverage and future interest costs. Possible risks include delays in backlog conversion or payment collection.

With the exception of 2021 and 2024, FOCF has been positive but volatile, mostly due to working capital fluctuations in construction. Stable rental income from the R70 building moderates this volatility. Scope expects FOCF will recover to HUF 2bn in 2025 and exceed HUF 4bn by 2026, continuing to support capex and liquidity needs through 2027. Nevertheless, sustained volatility in FOCF could constrain financial flexibility and exert downward pressure on the rating.

Liquidity: adequate (unchanged). ÉPKAR’s liquidity position is assessed as adequate, supported by unrestricted cash of HUF 15.3bn at end-2024 and forecast FOCF of around HUF 2.0bn in 2025. The company has no short-term debt obligations and maintains committed unused credit lines, albeit undrawn due to unattractive terms. Cash outflows primarily relate to working capital funding for ongoing projects and capital expenditures related to property upgrades. The cash cushion is expected to remain sufficient to cover operational needs and buffer temporary cash flow volatility.

Scope highlights that ÉPKAR’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 11bn) if the debt rating of the bond stays below B+ for more than two years (grace period) or drops below B- (accelerated repayment within 90 days). Such a development could adversely affect the company’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, ÉPKAR has no financial covenants attached to its bond, which constitutes the company’s only financial debt. The bond restricts dividend payments to 50% of profits after tax and includes a change-of-control clause requiring that 51% of ÉPKAR shares remain held by the Szeivolt family.

Supplementary rating drivers: credit neutral (unchanged). Supplementary rating drivers have no impact on the issuer rating.

Outlook and rating sensitivities

The Stable Outlook reflects the expectation that ÉPKAR will maintain solid credit metrics, with leverage declining towards 2x over the next 18–24 months, supported by strong order book execution and recurring rental income covering interest costs. The disciplined financial policy is anticipated to continue, though the rating remains constrained by the company’s weaker business profile relative to peers despite otherwise sound financials. The Outlook also reflects the expectation that pressure linked to volatility in cash generation will ease going forward.

The upside scenario for the rating and Outlook is:

1. A stronger business risk profile, driven by increased market share, a more diversified backlog and a greater exposure to market-based projects (remote)

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

1. Debt/EBITDA ratio of above 3.5x
    
2. Backlog of less than two years
    
3. Continued pronounced volatility in cash generation and profitability

Debt ratings

Scope has affirmed the senior unsecured debt rating at BB, one notch above the issuer rating, based on the 'superior' recovery expected for the company’s unsecured debt. Scope’s recovery analysis is based on a hypothetical default scenario at year-end 2026, assuming outstanding senior unsecured debt of HUF 11.0bn (bond) in addition to operating guarantees of HUF 4.0bn, senior secured payables of HUF 2.0bn and senior unsecured payables of HUF 2.0bn.

In November 2020, ÉPKAR issued a HUF 11bn senior unsecured bond (ISIN: HU0000360045) through the Hungarian Bond Scheme. The bond proceeds were used to acquire an office building in central Budapest to diversify ÉPKAR’s revenue by increasing rental income from real estate. The bond has a tenor of 10 years and a fixed coupon of 3%. Bond repayment is in four tranches, with 10% of the face value due in 2027, 20% in 2028 and 20% in 2029, followed by a 50% balloon payment at maturity in 2030.

Environmental, social and governance (ESG) factors

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

All rating actions and rated entities

ÉPKAR Zrt.

Issuer rating: BB-/Stable, affirmation

Senior unsecured debt rating: BB, 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 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 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,  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 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 Outlook and the principal grounds on which the Credit Ratings and Outlook are based. Following that review, the Credit Ratings and Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and 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 28 February 2020. The Credit Ratings/Outlook were last updated on 7 November 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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