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Fitch removes Eurohold Bulgaria from rating watch negative, outlook stable

Fitch removes Eurohold Bulgaria from rating watch negative, outlook stable Eurohold/All rights reserved.

SOFIA (Bulgaria), June 23 (SeeNews) - Fitch Ratings said on Thursday that it maintains Eurohold Bulgaria [BUL:EUBG]'s Long-Term Issuer Default Rating (IDR) of 'B' and has removed it from Rating Watch Negative (RWN) after affirming a stable outlook.

Eurohold Bulgaria's senior unsecured rating was also affirmed at 'B'/RR4 and the rating removed from RWN as well, the ratings agency said in a statement.

The decision comes as a result of the change in group structure and financial profile, with the bulk of the company's business shifting to energy from insurance following its completed debt-funded acquisition of the former units of Czech electricity group CEZ.

Last week, Eurohold lifted its indirect ownership in Electrohold Sales [BUL:CEZE] and Electrodistribution Grid West [BUL:CEZD] to 97.66% and 99.25% at the expiry of its tender offer to minority shareholders. The company plans to fully acquire and delist the companies from the Bulgarian Stock Exchange (BSE). In 2021, Eurohold completed the acquisition of the local assets of CEZ for 335 million euro ($351.6 million).

"The rating also reflects Eurohold's weak liquidity at the parent level with reliance on short-term debt," Fitch added.

The new assessment reflects the agency's expectation that Eurohold will divest its car selling and leasing businesses by the end of 2022.

"Following the acquisition of energy assets, Eurohold will focus on the utilities business, which will be the dominant contributor to consolidated earnings before interest, taxes, depreciation and amortisation (EBITDA) - around 65%-70%-, and on insurance (around 30%), with the small remaining contribution to EBITDA from asset management and brokerage," Fitch said.

The agency forecasts a moderate EBITDA growth at Eurohold in the next three years, with capex averaging 91 million levs ($48.8 million/46.5 million euro) per year between 2022 and 2026. Net acquisitions are projected to total close to 175 million levs in the current year, decreasing to an average of 70 million in the 2023-2026 period.

Fitch also said:

"Change in Applied Criteria: Due to the acquisition of CEZ's assets and the disposal of car selling and leasing, Eurohold's business profile has changed to a non-financial corporate with material financial operations (insurance, asset management and brokerage) from an insurance-focused financial holding. As a result, Fitch has applied its Corporate Rating Criteria as the master criteria, together with its Corporates Recovery Ratings and Instrument Ratings Criteria. The previously applicable criteria was the Insurance Rating Criteria.

Rating Approach: Fitch rates Eurohold using a consolidated approach but excluding the insurance business's EBITDA and net debt (the deconsolidated group profile). This is because access to the insurance business's cash flow is limited, due to regulatory requirements to keep a minimum solvency ratio at insurance companies. We include dividends from the insurance business in the deconsolidated perimeter.

Eurohold's IDR is notched down two levels below the deconsolidated profile given its structural subordination. Eurohold's debt service capacity is contingent on dividend income streams from intermediate holding companies and operating subsidiaries (assuming covenant compliance) and does not have direct access to the underlying operating cash flows.

Corporate Governance Limitations: The rating reflects Eurohold's complex group structure, significant related party transactions and lower financial transparency than its EU peers, including a qualified audit opinion. Fitch's assessment of the links between Eurohold Bulgaria and its ultimate parent Starcom Holding under its Parent Subsidiary Linkage (PSL) Criteria leads to a standalone rating approach, as Fitch does not give credit for family ownership and does not rate private individuals or their family groupings.

Operating Cash Flows Support Deleveraging: We expect strong operating cash flows and moderate capex to support deleveraging in the medium term. We forecast deconsolidated net debt to EBITDA, to increase in 2022 due to the minority buyout, reaching about 6.1x at end-2022 (5.3x at end-2021). We then expect it to improve to about 4.7x in 2024-2026. This leverage level is commensurate with Eurohold's ratings."

($ = 0.95236 euro)

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