Fitch Ratings has assigned state-owned Hungarian Electricity Works MVM’s (BBB/Stable) planned Eurobonds an expected foreign-currency senior unsecured rating of BBB(EXP).
The bonds’ rating is at the same level as MVM’s Long-Term Foreign-Currency Issuer Default Rating (IDR), as the bonds will constitute senior, unsubordinated, unconditional and unsecured obligations of MVM.
The proceeds from the bonds will be used to finance general corporate purposes. The bond documentation includes negative pledge, a change of control put option, redemption at the issuer’s option for tax reasons and cross default to any indebtedness of the issuer or any of its material subsidiaries with a 70 million euros threshold.
MVM’s business profile benefits from its strong market position in Hungary, spanning electricity generation (64 % market share), gas imports (off-taker in the main gas imports contract), gas storage (65 % market share), electricity transmission (100 % market share), electricity and gas distribution (27 % and 48 %, respectively), as well as electricity and gas wholesale and retail supply as the main company in the market.
MVM’s business profile also benefits from an estimated 45 % average share of regulated and quasi-regulated EBITDA under the Fitch rating case over 2020-2023. The regulated component contains electricity transmission and electricity and gas distribution, while the quasi-regulated contribution comes primarily from gas storage and renewable generation.
MVM has lower exposure to rising CO2 costs and is better positioned in the energy transition than most of its Fitch-rated central European peers. This is attributed to the low carbon footprint of the company’s 3.9 GW generation fleet, which is based on nuclear generation (52 % of generation capacity), natural gas and other (19 %) and renewables (7 %), complemented by coal, biomass and waste (23 %).
The carbon footprint will decrease further upon the planned phase-out of coal by 2025 by replacing its Matra coal-fired power plant with combined cycle gas turbine (CCGT) capacity, which will be positive for MVM’s electricity generation business profile.
Fitch expects that the recent spike in energy prices may have a negative impact on MVM’s gas and electricity retail business if the company is not able to fully reflect higher commodity prices in end user prices or mitigate the impact in the next 12-18 months. The agency does not expect this factor TS to drive rating action, but lower profitability and higher working capital needs may reduce MVM’s rating headroom, depending on the development of energy prices and regulated tariffs. The impact would be mitigated by improved profitability of nuclear generation.
MVM’s strategy provides for expansion in central Europe, so that by 2025 25 % of EBITDA should be generated abroad. The international expansion would improve geographical diversification, but would also lead to execution and profit-dilution risks. Therefore, Fitch currently views it as largely neutral for MVM’s credit profile. In late 2020, MVM acquired Innogy Czech Republic, a leading Czech supplier of natural gas and electricity, which was its first large international acquisition.
