The total proportion of the Bige Group amounts to HUF 11.0bn. Scope expects a penalty payment for Nitrogenmuvek of HUF 7.2bn, to be made in 2021 or 2022. According Nitrogenmuvek, the fine is calculated on financial results for 2020. In Scope’s last rating review (see: Scope affirms BB-/Stable issuer rating to Hungarian Nitrogenmuvek Zrt.), the rating agency stated its expectation that the GVH investigation would lead to a fine for the company in a similar amount in 2021.

However, the decision of the GVH represent a not a legally binding resolution. Nitrogenmuvek has already indicated that it will appeal against the decision. This might not result in cash outflow in the foreseeable future, if the respective court grants Nitrogenmuvek a deferral of the payment.   

In addition, the fertilizer industry is facing difficulties from the sharp increase in natural gas prices. Scope has consequently adjusted its forecast for the company’s EBITDA for 2021. We now expect EBITDA to be significantly weaker, depending on how natural gas and fertilizer prices will develop in Q4 2021. Scope now expects the most relevant ratio, funds from operations/Scope-adjusted debt, to close 2021 at around -2%. This is significantly below the threshold for a negative rating action (funds from operations/Scope-adjusted debt below 15% on a sustained basis) and assumes a delay of the penalty fine is rejected. While the further development of European fertilizer industry is clouded with uncertainty, Scope deem that market conditions will normalise in 2022, supported by demand from farmers and normalization of natural gas prices. Therefore, the credit ratio is anticipated to hover above 15% next year.  

In the current market environment Nitrogenmuvek benefits from: i) ample liquidity on the balance sheet after the very strong year 2020, ii) limited capex requirements; and ii) low proportion of short-term debt. 

This publication does not constitute a credit rating action. For the official credit rating action release click here. On 7 July 2021, Scope affirmed its issuer rating of BB-/Stable on Nitrogenmuvek Zrt.