December 23 (SeeNews) - Fitch Ratings said on Thursday that it is maintaining Eurohold Bulgaria [BUL:EUBG]'s Long-Term Issuer Default Rating (IDR) of 'B' and senior unsecured rating of 'B'/RR4 on Rating Watch Negative (RWN), due to Eurohold's acquisition of the Bulgarian assets of Czech utility company CEZ.
"Eurohold's dominant business has changed to utilities from insurance as a result of this acquisition," the global ratings agency said in a statement. "The new business profile requires application of a different master rating criteria as Fitch rates utilities under Corporate Rating Criteria, while in its previous structure Eurohold was rated under Insurance Rating Criteria."
In July, the Eastern European Electric Company BV (EEEC), an investment vehicle controlled by Eurohold, acquired stakes of 67% in CEZ Distribution Bulgaria and CEZ Electro Bulgaria, as well as 100% of CEZ Trade Bulgaria's shares. After subsequent calls for the remaining shares of CEZ Distribution Bulgaria and CEZ Electro Bulgaria, in November, EEEC increased its shareholdings to 88% and 69%, respectively.
Fitch also said in the statement:
"We expect to resolve the RWN within the next six months, following a full review of Eurohold's ratings under the newly applicable rating criteria.
The acquisition of CEZ's assets will be followed by divestments of the car sales and the leasing businesses, which we expect in 2022. The two divestments will allow Eurohold to focus on the utilities business as the dominant contributor to consolidated EBITDA (around 70%-75%) and on insurance (around 20%-25%). The remaining contribution to EBITDA will be from asset management and brokerage.
Due to the acquisition of CEZ's assets and the disposal of car selling and leasing, Eurohold's business profile will change to a non-financial corporate with material financial operations (insurance, asset management, brokerage) from an insurance-focused financial holding. Therefore, to resolve the RWN, Fitch will consider a different set of rating criteria than applied in the past. These will include Corporate Rating Criteria as the master criteria, with the likely addition of Parent and Subsidiary Linkage Rating Criteria and Corporates Recovery Ratings and Instrument Ratings Criteria.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
-- Fitch could downgrade the ratings, if the group's business and financial profile following CEZ's assets acquisition is not consistent with the current rating.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
-- Fitch could affirm the ratings and assign a Stable Outlook if the group's business and financial profile following CEZ's assets acquisition is consistent with the current rating.