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Rating action

Scope Ratings GmbH (Scope) has affirmed the BBB+/Stable issuer rating of Hungary’s Magyar Telekom Nyrt. Scope has also affirmed the rating for the company’s senior unsecured debt at BBB+.

Magyar Telekom’s issuer rating reflects its continued healthy business and financial risk profiles. However, lingering concerns around policy predictability in Hungary have led to a negative adjustment of the standalone credit assessment. This issue is especially pertinent given that changes in sector-specific policies have significantly impacted the performance of Hungary’s telecoms companies in the past.

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

Key rating drivers

Business risk profile: BBB+ (unchanged). Magyar Telekom’s business risk profile benefits from the telecom industry’s low cyclicality. In addition, the company’s leading position as the incumbent operator in Hungary’s mobile and broadband markets strongly supports its competitive position.

Over the years, Magyar Telekom has maintained a solid leading position in the Hungarian mobile segment, holding around 45% of the market. The second and third largest players lag well behind with a share of around 25% each. Although M&A activity in the sector has somewhat disrupted the residential broadband segment in recent years, Magyar Telekom continues to dominate the overall fixed internet market with a market share of around 46% in 2024. Together, the mobile and fixed segments in Hungary account for over 80% of the company’s revenues. Scope notes that Magyar Telekom’s domestic market shares in several segments exceed those of most European telecom operators. While Magyar Telekom also has a strong leadership position in the North Macedonian telecoms market, this offers limited diversification given its small contribution to the company’s overall revenues and profits (around 8% and 9% of revenues and EBITDA, respectively, in 2024).

Over the eight-year period ending in 2023, Magyar Telekom’s Scope-adjusted EBITDA margin* remained range-bound between 30% and 34%. This was lower than that of its main European peers, primarily due to telecoms and utility taxes in Hungary. However, the EBITDA margin improved by more than 350 bps to approx. 37.5% in 2024. This improvement was driven by: i) the removal of the utility tax in January 2024; ii) inflation-linked price increases implemented in March 2023 and March 2024; iii) continued improvement in the subscriber base and underlying average revenue per user in certain segments; and iv) cost containment measures. Although the company has suspended inflation-linked price increases for 2025 and the first half of 2026, EBITDA margins have improved by more than 450 bps YoY in the first half of 2025. This was primarily due to the abolition of the supplementary telecoms tax (equivalent to around 3.7% of revenues in 2024) from January 2025. Consequently, Scope anticipates a sustainable improvement of at least 300-350 bps in the company’s EBITDA margin compared to 2024. In this respect, the Memorandum of Understanding signed between the Hungarian government and Magyar Telekom in September 2023 provides reassurance regarding the intended tax structure in the medium term. Nevertheless, future changes to the tax structure cannot be completely ruled out.

Financial risk profile: A+ (revised from A). The company’s enhanced financial risk profile is underpinned by a significant improvement in its cash flow metrics and reflects sustained improvements in leverage resulting from higher profitability and moderate capital expenditure.

Magyar Telekom’s leverage, as reflected in the debt/EBITDA ratio, improved to 1.1x in 2024 and to 1.0x in the 12 months up to June 2025. This is an improvement on the 1.5-2.0x ratio seen in the previous six years, during which time profitability remained range-bound and significant expenditure and spectrum payments were made. Although the Board-approved KPIs permit leverage of up to 2.8x, Scope does not anticipate significant leverage in the near to medium term. Debt protection remains strong, with EBITDA/interest coverage consistently above 10x.

In line with its current financial policy, applicable from 2025 onwards, Magyar Telekom intends to maintain shareholder remuneration (in the form of dividends and share buybacks) at 60%-100% of the preceding financial year’s adjusted net income (updated from 60%-80% under the previous policy, applicable from 2022 to 2024). Although this will affect the company’s discretionary cash flows, the projected increase in margins is expected to result in an improvement in its leverage and liquidity metrics over the medium term.

Liquidity: adequate (unchanged). Historically, cash flow coverage has been volatile due to capex/spectrum-related outflows. However, liquidity is expected to be adequate, supported by the business’s strong cash flow generation capacity, moderate capital expenditure plans, and access to undrawn credit lines. It is also important to note that Magyar Telekom has access to funding support from its parent company, Deutsche Telekom AG, which owns approximately 66% of the company’s shares as of 30 June 2025. This support comes in the form of access to the group’s cash pool for short-term liquidity requirements and bilateral loans for longer-term funding requirements. Conversely, the company contributes its excess liquidity to the group’s cash pool, creating a strong financial and liquidity linkage with the parent company. At the end of 2024, the company had cash pool receivables totalling over HUF 51bn.

Supplementary rating drivers: (-1 notch, unchanged). Scope has made a one-notch negative adjustment to Magyar Telekom’s standalone credit assessment under peer context. This reflects Scope’s view that the company operates in a market that is more exposed to policy changes, influences and interventions than its peers with similar ratings that operate in more mature, stable and predictable European markets (Hungary is rated BBB/Stable by Scope). For instance, in response to the government’s push to control inflation, Hungarian telecoms companies (including Magyar Telekom) voluntarily agreed to delay price increases until the first half of 2026. Additionally, the potential reintroduction of special sector-specific taxes in the event of an adverse economic scenario cannot be ruled out.

Scope has made no adjustment for other supplementary rating drivers such as financial policy, parent support, or governance and structure. However, Scope notes that financial and liquidity linkages with the lower-rated Deutsche Telekom AG remain. Based on Magyar Telekom’s integration into the Deutsche Telekom group (cash pooling and financing), Scope believes that the risk of the parent company’s activities adversely affecting Magyar Telekom’s ability to meet its own contractual financial obligations on time and in full is low.

Environmental, social and governance (ESG) considerations have no impact on the rating.

Outlook and rating sensitivities

The Stable Outlook reflects Scope’s expectation of a continued healthy business risk profile with a stable market position, as well as a strong financial risk profile, as evidenced by an EBITDA/interest cover ratio of over 10.0x and a debt/EBITDA ratio of less than 1.0x. This is supported by an expected improvement in the EBITDA margin of around 300-350 bps in 2025 compared to last year, as well as moderate capital expenditure. The Stable Outlook also reflects Scope's expectation that there will be no positive rating pressure in the near term from the company's major shareholder, Deutsche Telekom AG, or from an improvement in Hungary’s credit quality.

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

1. Maintenance of a debt/EBITDA ratio below 1.5x
    
2. Improved rating of the parent company (Deutsche Telekom AG)
    
3. Improved diversification of operations and/or improved policy visibility in Hungary, reducing regulatory uncertainty

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

1. Higher regulatory risk, as evidenced by materially adverse policy developments and/or a material deterioration in Hungary’s sovereign rating
    
2. Deterioration of the parent company’s credit rating
    
3. Debt/EBITDA ratio above 2.5x on a sustained basis

Debt rating

Scope has affirmed the rating of the senior unsecured debt issued by Magyar Telekom Nyrt. at BBB+, the same level as the issuer rating.

Environmental, social and governance (ESG) factors

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

All rating actions and rated entities

Magyar Telekom Nyrt

Issuer rating: BBB+/Stable, affirmation

Senior unsecured debt rating: BBB+, 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                                            NO
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: Nidhi Marwaha, 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 October 2020. The Credit Ratings/Outlook were last updated on 23 September 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
© 2025 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Innovation Lab GmbH and Scope ESG Analysis 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. Public Ratings are generally accessible to the public. Subscription Ratings and Private Ratings are confidential and may not be shared with any unauthorised third party.