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Rating action

Scope Ratings GmbH (Scope) has today affirmed its BB-/Stable issuer rating on Hungarian agribusiness company Hunland Trade Kft. Scope has also affirmed the BB- rating on the senior unsecured guaranteed bond (ISIN: HU0000360680).

The affirmation reflects broadly unchanged credit metrics and stable EBITDA despite the foot-and-mouth disease outbreak in Hungary, which resulted in nationwide restrictions on livestock transport between March and July 2025.

None of Hunland Group`s farms were directly affected by the outbreak, and the supply chain distortions caused by the trade restrictions only had a minor negative effect on the issuer's financial performance (a revenue decrease of around 4% in H1 2025 YoY; relatively stable EBITDA margin).

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 is driven by the moderate market share and the highly diversified supplier and customer portfolios, as well as the geographical outreach. The concentrated product portfolio, and comparatively weak operating profitability are constraints.

Hunland Trade remains the domestic market leader in livestock export, with market shares of around 70% in cattle, 27% in pigs and 54% in sheep and goats. During 2024, the double-digit topline growth observed in 2023 slowed but organic growth remained significant (+9.4% YoY). This positive development is attributable to a further increase in volumes sold, especially on Middle Eastern markets. In 2025, Scope expects relatively stagnant revenues (-1% YoY) as a result of i) weaker H1 topline generation due to market distortions caused by the foot-and-mouth disease outbreak; and ii) a return to business as usual in H2, with 2.5% average organic growth forecasted.

The issuer’s geographical diversification remains the strongest element of the business risk profile, with operations in more than 40 countries. The customer and supplier portfolios remain well diversified. The top 10 customers represented 40% of total sales as of 2024, and the largest customer accounted for 8% of total sales. The supplier portfolio contains a number of sister companies, reflecting the integrated business model of Hunland Trade. However, the product portfolio is less diversified, with livestock accounting for 91% of total revenues in 2024.

Operating profitability remained low, although without significant volatility (2024 Scope-adjusted EBITDA margin*: 1.9%). Scope highlights the fact that the issuer is primarily engaged in the trading of agricultural products – an industry with narrow profit margins compared to those of producers. From 2025, Scope assumes a slightly more conservative outlook on Hunland Trade's EBITDA margin (forecasted to be around 1.7% until 2027) in anticipation of potential wage pressures and a slowdown of price growth over the coming years.

Financial risk profile: BB (unchanged). The financial risk profile benefits from the very strong interest cover and moderate leverage, while being constrained by the volatile cash flow cover.

Hunland Trade’s interest cover remains the strongest element of the financial risk profile. The issuer’s cross-currency interest swap since 2022 for the full term of its senior unsecured guaranteed bond allows it to pay interest in euros instead of forints, as the bond’s notional amount in forints was swapped for euros. However, due to the significant difference in base interest rates between the euro and forint, the swaps resulted in negative interest rates in euros (-0.8% on average), meaning that Hunland Trade is actually receiving interest instead of paying it. Additionally, Hunland Trade receives interest from the intercompany loans provided to sister companies (from the allocation of proceeds from the bond issuance). This is expected to result in consistently positive interest income in the years ahead.

Scope anticipates that leverage, as measured by debt/EBITDA, will remain relatively stable at at a ratio of between 4.5x and 5.0x until 2026. This is due to Scope's expectation of relatively stable EBITDA, coupled with the plan to refinance the senior unsecured bond through new bank loans. This will result in a stagnant level of financial debt. Scope only partially nets cash (50% of cash on the balance sheet) to account for the intra-year volatility of working capital levels. Movements in the cash level can significantly affect leverage metrics.Free operating cash flow is more volatile than EBITDA, significantly impacted by shifts in net working capital. Scope forecasts considerable volatility going forward, with cash flow cover as measured by free operating cash flow/debt to fluctuate between 4% and 14% until 2027.

Liquidity: adequate (unchanged). Liquidity is assessed as adequate as sources in the liquidity forecast for 2026 fully cover uses (EUR 6.2m of short-term debt at YE 2025). Sources comprise EUR 20.7m of unrestricted cash forecasted at YE 2025 and free operating cash flow forecasted at EUR 0.5m. Additionally, Hunland Trade has a EUR 5m working capital facility which might serve as an additional source of liquidity.

Scope highlights that Hunland Trade’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 24.2bn) 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 two notches. Scope therefore sees no significant risk of the rating-related covenant being triggered.

Supplementary rating drivers: credit-neutral (unchanged). Supplementary rating drivers are credit-neutral.

Scope highlights the complex group structure and frequent related-party transactions and intra-group financing with companies outside of the rated entity’s scope of activities, e.g. with sister companies operating under the same roof (ESG factor: credit-negative).

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

Outlook and rating sensitivities

The Stable Outlook incorporates Scope’s view that key credit metrics will develop as forecasted, with debt/EBITDA between 4.5 – 5.0x and positive free operating cash flow generation at around 5%. It also incorporates Hunland Trade’s position as the leading Hungarian livestock exporter and Scope’s expectation that Hunland Trade’s EBITDA margin will remain stable at around 2%.

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

1. Debt/EBITDA of below 4.0x on a sustained basis
    
2. Improved business risk profile, e.g. demonstrated by improved operating profitability on a sustained basis

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

1. Debt/EBITDA of above 6.0x on a sustained basis
    
2. Negative free operating cash flow

Debt rating

Scope has affirmed the BB- rating of the senior unsecured guaranteed bond, at the same level as the issuer rating.

Scope expects an ‘above-average’ recovery for the HUF 24.2bn guaranteed senior unsecured bond, which is based on an anticipated liquidation value in a hypothetical default scenario occurring in 2027. The guaranteed senior unsecured bond ranks below short-term and long-term debt raised from financial institutions (excluding the bond) and payables that are secured by asset pledges.

Scope’s recovery expectation takes into consideration uncertainties regarding the value of claims at the guarantors’ (Hunland Trans Kft, Bovinia Kft, Hunland Production Kft, Hunland Dairy Kft, HLT Production, Hunland Service, HLT Telep, Hunland Feed and Hunland Group Holding) level at the point of a hypothetical default of the bond issuer. The value of claims at default is strongly driven by short-term assets such as inventory, receivables and financial assets whose value Scope deems as uncertain at default. It also considers uncertainties about the debt positions of the guarantors at the point of a hypothetical default of the bond issuer and the seniority of the claim. Hence, Scope has refrained from granting an uplift to the bond rating above the issuer rating.

Environmental, social and governance (ESG) factors

Scope highlights the complex nature of the intragroup financing between Hunland Trade and its sister companies. Specifically, the debt structure is complex, with different group entities acting as guarantors while raising multiple layers of debt seniorities. This makes the ranking for credit claims difficult to ascertain and could complicate a workout in case of a company default. This is seen as credit negative but does not lead to a negative rating-adjustment for ESG rating drivers as this is already reflected in the more conservative assessment of the financial risk profile.

All rating actions and rated entities

Hunland Trade Kft.

Issuer rating: BB-/Stable, affirmation

Senior unsecured (guaranteed) debt instrument rating (ISIN: HU0000360680): 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 methodology used for these Credit Ratings and/or Outlook, (General Corporate Rating Methodology, 14 February 2025), is 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: Istvan Braun, Senior Representative
Person responsible for approval of the Credit Ratings: Thomas Faeh, Executive Director
The issuer Credit Rating/Outlook was first released by Scope Ratings on 25 February 2021. The Credit Rating/Outlook were last updated on 18 December 2024.
The bond Credit Rating was first released by Scope Ratings on 13 July 2021. The Credit Rating was last updated on 18 December 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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