The latest information on the rating, including rating reports and related methodologies, is available on this LINK.

Rating action

Scope Ratings has today assigned a BB-/Stable corporate issuer rating to Hungary-based Nitrogenmuvek. The agency has also assigned a senior unsecured debt rating of BB-.

The analysis is based on publicly available information and information provided by the issuer (internal documents, accounts), as the issuer has participated in the credit rating process.

Rating rationale

The assigned issuer rating consists of a business risk profile of B+ and a financial risk profile of BB+. This reflects Nitrogenmuvek’s position as the sole producer of nitrogen fertilisers in Hungary with an annual production capacity including 497,000 tonnes of ammonia and 1,345,000 tonnes of CAN. However, its limited scale for the global chemical industry in general and the fertiliser industry in particular (sales of around EUR 250m) hampers its market position. The rating is held back by relatively weak diversification, as the company only operates one production site and its portfolio consists of commodity-like products. Despite volatile profitability (EBITDA margin), the rating is supported by an EBITDA margin averaging 19% for 2010 to 2019.

Following the completion of Nitrogenmuvek’s EUR 320m capex programme in 2013 to 2019, Scope anticipates that its credit profile will improve. This is supported by considerable tailwinds from a sharp drop in natural gas prices in Q1 2020, with prices for major products declining at a slower pace, combined with a jump in the production and delivery of products. Although Scope believes that prices for nitrogen fertilisers will decrease in the remainder of 2020, the rating agency still anticipates that Nitrogenmuvek’s EBITDA will be around HUF 29bn. The foreseen positive development in credit metrics should be accompanied by a rise in free cash flow generation. Liquidity is classified as adequate in accordance with Scope’s Corporate Rating Methodology. 

Scope has made no adjustment for supplementary rating drivers (financial policy, peer context, parent support, governance and structure).

Outlook and rating-change drivers

The Outlook is Stable based on Scope’s expectation of funds from operations/Scope-adjusted debt significantly above 15% in 2021 and 2022. In view of the completed capex programme, deleveraging will be very important for Nitrogenmuvek, in tandem with ramping up production of the capacities built. Scope anticipates limited business cutbacks from Covid-19, as farmers have to use fertilisers in order to generate high crop yields.

A rating upgrade may be triggered if Nitrogenmuvek expands its business activities combined with funds from operations/Scope-adjusted debt sustainably above 30%. This could, for instance, be achieved via a higher profit contribution from the Crop Trading division, together with further improvement of the cost position in Nitrogenmuvek’s core business.

A negative rating action may be warranted if funds from operations/Scope-adjusted debt persistently falls below 15%. This could occur if the company’s financial policy becomes more aggressive, e.g. with significant dividend payments.

Long-term and short-term debt ratings

All senior unsecured debt has been assigned a rating of BB-, the level of the issuer rating.

Stress testing & cash flow analysis
No stress testing was performed. Scope performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for this rating(s) and/or rating outlook(s) (Corporate Rating Methodology, 26 February 2020; Rating Methodology Chemical Corporates, 23 April 2020) are available on https://www.scoperatings.com/#!methodology/list.
Information on the meaning of each rating category, including definitions of default and recoveries can be viewed in the “Rating Definitions - Credit Ratings and Ancillary Services” published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Please 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’s definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how Environmental, Social or Governance factors (ESG factor) are incorporated into the rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months. 

Solicitation, key sources and quality of information 
The rated entity and/or its agents participated in the rating process.
The following substantially material sources of information were used to prepare the credit rating: the rated entity, public domain and Scope internal sources.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings 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.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating and rating outlook is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Klaus Kobold, Associate Director
Person responsible for approval of the rating: Werner Stäblein, Executive Director
The ratings were released for the first time on 2 July 2020.

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
© 2020 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Analysis GmbH, Scope Investor Services GmbH and Scope Risk Solutions 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.

Scope Ratings GmbH, Lennéstraße 5, 10785 Berlin, District Court for Berlin (Charlottenburg) HRB 192993 B, Managing Director: Guillaume Jolivet