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Rating action

Scope Ratings GmbH (Scope) has today assigned a first-time issuer rating of B+/Stable to Georgia Healthcare Group JSC (hereafter ‘GHG’). Scope has also assigned a preliminary bond rating of (P) BB- to the planned GEL 350m senior unsecured bond guaranteed by GHG’s subsidiaries.

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-. GHG’s business risks are largely mitigated by i) industry-inherent favourable characteristics including low macro-economic cyclical exposure, medium market entry barriers, and low substitution risk; ii) its market position as a leading healthcare provider in Georgia; and iii) its moderate to good profitability. However, business risks are amplified by limited diversification due to geographic and sector concentration, with operations restricted to Georgia and focused exclusively on healthcare.

GHG holds a commanding position as the largest integrated healthcare provider in Georgia's fragmented healthcare service industry. The company has around 14% market share by number of clinical beds and around 21% market share by sales in Universal Health Care (UHC) as of YE 2024. GHG’s market position remains constrained by the relatively limited addressable market (under GEL 2.8bn). However, sales and the capacity utilisation of beds are expected to grow significantly in the coming years after the recent modernisation and expansion programme. This makes it likely that market shares will continue to rise, helping GHG to maintain its strong national lead.

GHG’s diversification is weaker than that of larger multinational peers, given its focus on one country and one industry (healthcare). However, this may gradually improve through strategic initiatives, such as expanding medical tourism by targeting affluent patients from neighbouring countries like Armenia and Azerbaijan, as well as growing its diagnostics business. These segments are expected to gain relevance over time. GHG operates a vertically integrated model across hospitals, clinics, and diagnostics, offering a broad range of healthcare services. Its wide treatment coverage and strong accessibility give it a diversification advantage over domestic competitors.

At present, GHG is highly dependent on the Georgian state, with the UHC programme accounting for 54% of its annual revenue in 2024. While this provides short-term credit support due to the government’s strong payment record, it also exposes the company to policy risk around potential local economic and regulatory changes (ESG factor: credit negative). However, management is seeking to expand GHG’s exposure to private payors, which would accelerate cash inflows and reduce dependence on the UHC programme, where the state retains strong negotiating power over pricing and reimbursement terms.

GHG’s profitability continues to strengthen, with its Scope-adjusted EBITDA margin* rising to nearly 20% in 2024 from 17% in 2023. This improvement is driven by the full return to operations of its hospitals following renovation-related disruptions, an increased focus on high-margin outpatient services, and disciplined cost management, particularly in fixed personnel expenses.

Georgia’s healthcare sector remains subject to regulatory oversight, particularly for services reimbursed under the UHC programme, where prices are set by the state. At the same time, providers like GHG still benefit from a relatively flexible operating environment. Outside the UHC framework, GHG has greater freedom to set tariffs for privately funded and out-of-pocket services, which enhances its ability to improve margins.

Further profitability gains are supported by the rollout of in-house digital tools that streamline access to care, reduce waiting times, and optimise internal workflows. Although these investments have increased capex in the short term, they are expected to improve operational efficiency and patient throughput (ESG factor: credit positive).

Financial risk profile: B. GHG’s financial risk profile is weaker than its business risk profile. Scope acknowledges that credit metrics may improve in the next few years. However, the current financial risk profile reflects still-high leverage, constrained free operating cash flow (FOCF) as well as ongoing risk exposure to the economic uncertainty of the Republic of Georgia (rated BB/Negative), which could delay the expected growth in EBITDA and deleveraging trajectory.

GHG’s indebtedness is due to significant capex needs. While a portion of funding needs have been met internally, the company has also relied on external financing, including bank loans. The funds raised through the planned bond (GEL 350m) will be used to fully refinance existing loan obligations (GEL 342.2m including bridge loans at YE 2024).

Scope projects debt/EBITDA ranging between 4.0x and 5.0x in 2025-2026, compared to 5.2x at YE 2024, with a further decline expected to below 4.0x in 2027. Deleveraging is expected to be driven by EBITDA growth from higher hospital utilization and a stronger focus on high-margin outpatient services. For the same reasons, Scope expects the funds from operations/debt ratio to follow a similar trend, improving to above 10% from 2025 (2024: 9%). Some reassurance is provided by the company’s medium-term leverage target of under 2.5x and loan covenants that require progressive reductions in leverage starting in 2026. However, Scope notes that EBITDA not growing as expected may result in larger deviations from the forecast corridor.

GHG’s EBITDA interest coverage is forecast to remain moderate despite pressure from the relatively high cost of debt in Georgia. EBITDA interest cover was at 1.9x in 2024 and the ratio is expected to remain at a modest level of around 2.0x in 2025-26. This is supported by EBITDA growth, but constraint by the anticipated rising cost of debt. While the company is planning the GEL 350m bond issuance at TIBR + 300bp to 350bp, Scope has projected the cost of debt based on more conservative assumptions, given the ongoing political tensions in Georgia. The agency's base case does not include severe impacts from the current political situation, which could lead to sanctions on Georgia and significantly restrict international capital inflows. Scope will closely monitor developments and adjust its base case if such material risks arise.

As of May 2025, the National Bank of Georgia has maintained its key policy rate at 8.0%, unchanged since May 2024. While inflation remains below the 3% target, political uncertainties have led the central bank to adopt a cautious stance. The bank has signalled that, if risks subside, it will gradually normalize rates toward a neutral level of 7%. Lower interest rates would support GHG’s EBITDA interest cover ratio in the event of further debt issuance.

Scope’s assessment of GHG’s overall financial risk profile is somewhat constrained by prolonged pressure on FOCF (FOCF/debt sustainably below 5%). This is driven by the company’s expansionary capex phase, currently GEL 50m annually, and persistent working capital swings.

Liquidity: adequate. Scope views GHG’s liquidity as adequate. Although liquidity cover is below 110%, primarily due to weak to negative FOCF and the absence of committed credit lines, Scope does not foresee refinancing challenges. Key factors supporting this assessment include: i) reduced refinancing needs per annum (the planned bond’s bullet structure does not require principal repayments on the refinanced amount for the next four years, but rather repayment of the full prinicpal amount by 2030); and ii) projected cash buffers of at least GEL 5m. The company also has well-established relationships with local banks and international financial institutions, such as the European Bank for Reconstruction and Development and the Asian Development Bank.

Outstanding loans as of now contain credit-related covenants. The most significant covenants relate to i) leverage; ii) interest coverage; iii) liquidity and short-term debt; and iv) required notifications and approvals for additional debt placements. As certain covenants had not been complied with, waivers were required for both 2023 and 2024. These were granted by the financing banks. Scope believes that the company would engage with its lenders in an orderly manner in the event of a foreseeable covenant breach. Considering GHG’s established position in the domestic market and its historical relationships with funding partners, continued support from its banks appears likely.

Supplementary rating drivers: credit neutral. The rating has not been adjusted for supplementary rating drivers. While Scope acknowledges the company’s limited shareholder distributions, adherence to financial and credit covenants, and commitment to maintaining maximum leverage, the undiversified funding structure and associated refinancing/cliff risk are noted as concerns.

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 credit metrics will remain at current levels, with debt/EBITDA of between 4.0x and 5.0x and an EBITDA interest cover of around 2x. The Outlook also reflects the gradual improvement of operations with the EBITDA margin improving to over 20%, which should support better credit metrics over time. The Outlook further incorporates Scope's expectation of full compliance with (financial) covenants.

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

1. Debt/EBITDA of below 4x on a sustained basis
    
2. EBITDA interest cover of above 2x on a sustained basis
    
3. Alleviation of concerns around debt refinancing risk

The downside scenario for the ratings and Outlook is:

1. Debt/EBITDA around or above 5.5x on a sustained basis

Debt rating

GHG plans to tap the bond market with a first-time senior unsecured social bond issue (GEL 350m) in August/September 2025, to which Scope assigns a preliminary bond rating of (P) BB-. Scope’s recovery analysis is based on a hypothetical default scenario in 2027, which assumes no outstanding senior secured bank loans that rank senior to the senior unsecured bond. The analysis indicates superior recovery expectations for the bond, taking into account a reasonable liquidation value at default of about GEL 366m after administrative claims. However, Scope has only provided a single-notch uplift to the bond rating. This is due to emerging market risk and the risk that GHG could raise additional senior secured bank loans, which could impair the recovery for bondholders if the company falls into distress. Important to note that the bond will be guaranteed by 9 GHG subsidiaries.

Environmental, social and governance (ESG) factors

GHG'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 waiting times and improving overall service delivery. Although product development has temporarily led to higher capex, these investments are expected to support revenue growth and more efficient day-to-day operations.

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

All rating actions and rated entities

Georgia Healthcare Group JSC

Issuer rating: B+/Stable, New

Senior unsecured (guaranteed) GEL 350m bond rating: (P) BB-, New

*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 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.
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 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, 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/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: 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 6 June 2025.

Potential conflicts
See www.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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