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Rating action

Scope Ratings GmbH (Scope) has today downgraded the issuer rating of VIAN JSC to B+ from BB- and revised the Outlook to Stable from Negative. Scope has also downgraded the senior unsecured debt rating to B+ from BB-. Subsequently, Scope has withdrawn all ratings on VIAN JSC due to business reasons.

The rating action reflects the issuer’s still-elevated leverage, which, despite gradual improvement, remains above levels consistent with the previous rating. While regulatory renovations and a strategic focus on high-margin outpatient services have supported revenue and EBITDA margin recovery, the pace of credit metrics improvement has lagged expectations. Although the successful refinancing of the GEL 50m bond due in November 2024 has reduced immediate liquidity pressure, the company remains exposed to elevated leverage and limited financial flexibility. The potential debt repayment by the parent company, while positive, is not yet certain.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

Business risk profile: BB- (unchanged). The business risk profile benefits from the low cyclicality and protected nature of the underlying healthcare services industry. VIAN remains the largest hospital chain in Georgia's fragmented healthcare service industry. It holds around 7.5% market share by the number of beds and around 13% market share by sales in Universal Healthcare (UHC). Its market position remains constrained by a relatively limited addressable market (less than GEL 2.5bn).

Diversification remains the main constraint for VIAN’s business risk profile as the company operates in one country and one industry. Scope emphasises the substantial risk associated with the still high dependence of VIAN’s business model on government-funded revenue streams (56% of total revenues according to preliminary 2024 figures). This remains a persistent concern (ESG factor: credit-negative).

In terms of profitability, Scope-adjusted EBITDA margin* improved to 20% in 2024 from 17% in 2023. Growth was driven by a full return to operations following renovations and an expanded focus on high-margin outpatient services.

VIAN aims to improve service quality through operating efficiency, supported by in-house digital tools that streamline patient access. While initial capex has increased, these innovations are expected to enhance profitability through improved patient flow and cost efficiency (ESG factor: credit-positive).

Further exposure to outpatient services coupled with cost efficiency will likely help the company keep its EBITDA margin at around 20% over the next few years.

Financial risk profile: B (revised from B+). The revision of the financial risk profile reflects persistently weak credit metrics and limited financial flexibility. Although leverage in terms of debt/EBITDA improved to 4.7x in 2024 from 5.8x in 2023, it remains above levels consistent with a higher assessment and is expected to remain so.

The GEL 50m bond maturing in November 2024 was refinanced through a bridge loan. However, this bridge facility cannot be fully refinanced from internal cash flow, underlining continued dependence on external funding sources and maintaining elevated refinancing risk in the short to medium-term.

Annual capex remains in the low double-digit million range (around GEL 20-30m), which is expected to keep free operating cash flow constrained. Although this limits near-term debt reduction, Scope expects leverage to gradually decline to 4.0x in 2026, mainly driven by EBITDA growth from increased hospital utilization and expansion of high-margin outpatient services. For the same reasons, Scope expects the funds from operations/debt ratio to follow a similar trend, improving to around 10% in 2026 (2024: 8%).

The relatively high cost of debt in Georgia puts pressure on EBITDA interest cover. While the company kept the cost of debt at around 13% (12% in 2023 and 11% in 2022), EBITDA interest cover dropped below 2.0x (1.8x in 2024 and 1.5x in 2023) as a result of weaker EBITDA after the demerger and increased indebtedness. Scope expects the ratio to remain at a modest level of close to 2.0x in 2025-26 supported by rising EBITDA. Given the ongoing political tensions, Scope has applied conservative assumptions for the projected cost of debt. The potential for debt repayment by the parent company has not been included in the forecasts.

Liquidity: adequate (unchanged). Scope views VIAN's liquidity as adequate. Despite weak to negative free operating cash flow and the absence of committed credit lines, Scope does not foresee refinancing challenges with liquidity cover expected above 110% in the next two years. This is thanks to well-established relationships with local banks and international financial institutions such as the European Bank for Reconstruction and Development and the Asian Development Bank. A possible repayment of outstanding debt by the parent would further strengthen VIAN’s liquidity and financial flexibility.

Supplementary rating drivers: credit-neutral (unchanged). No explicit adjustment for additional rating drivers has been made.

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

Outlook and rating sensitivities

The Stable Outlook incorporates Scope’s expectation that leverage, as measured by debt/EBITDA, will remain in the 4.0x to 5.0x range in the short-term. Deleveraging below 4.0x is contingent on sustained operational recovery and improved profitability.

Debt rating

Scope downgraded the senior unsecured debt rating to B+ from BB-, in line with the issuer rating. The recovery analysis is based on a hypothetical default scenario in 2026 and assumes outstanding senior secured bank loans would rank ahead of any senior unsecured obligations. Scope’s analysis assumes a liquidation scenario given the significant asset balance, including fixed assets with high recoverable values (i.e. hospitals). Still, this scenario has an ‘average’ recovery for holders of senior unsecured debt. Subsequently, the rating has been withdrawn.

Environmental, social and governance (ESG) factors

VIAN's credit-positive ESG profile is supported by its emphasis on health and safety, particularly through service quality improvements driven by digital operating efficiencies (e.g., in-house developed apps). These tools enhance access to the healthcare ecosystem, facilitating appointments, payments, and consultations, while reducing patient wait times and improving overall service delivery. Although product development has led to temporarily higher capex, these investments are expected to support revenue growth and more efficient day-to-day operations.

While VIAN benefits from strong compliance with new safety and regulatory standards, offering a competitive edge, there remains material risk related to the company’s high dependence on government funding. Any abrupt changes to reimbursement frameworks, pricing schemes, or public healthcare policies could significantly affect business performance. This reliance is viewed as a credit-negative ESG factor due to its potential to impact long-term financial stability.

All rating actions and rated entities

VIAN JSC

Issuer rating: B+/Stable, downgrade and withdrawal for business reasons

Senior unsecured debt rating: B+, downgrade and withdrawal for business reasons

*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 Outlook, (General Corporate Rating Methodology, 14 February 2025), is 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.

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 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: Azza Chammem, Associate Director
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 11 July 2019. The Credit Ratings/Outlook were last updated on 31 May 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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