Downgrade of Zagreb Holding’s Rating

Standard & Poor’s (S&P) has today downgraded the short-term and long-term credit rating of Zagreb Holding from ‘B+’ to ‘B’, with a negative outlook.

-The downgrade of Zagreb Holding reflects our assessment of a ‘high’ probability that its 100% owner, the City of Zagreb, will provide extraordinary support in case of financial difficulties, sufficient and timely, and our assessment of its standalone credit profile (SACP) at ‘ccc+’, the statement says.

The agency states that due to its stance on the ‘high’ probability that Zagreb will provide extraordinary support to Zagreb Holding, the Holding’s rating is three notches higher than its standalone rating.

The standalone credit rating (SACP), on the other hand, is based on a combination of Zagreb Holding’s ‘highly leveraged’ financial profile, along with ‘weak’ standalone liquidity maintenance arrangements and unpredictable financial policy, as well as a ‘weak’ business profile, among other things, the agency’s statement notes.

-The negative outlook on the rating reflects our expectation that Zagreb Holding’s standalone rating could further deteriorate as a result of unfavorable organizational changes, its inability to contain costs, or due to increasing refinancing risks, concludes S&P.

S&P analysts emphasize that they could further lower Zagreb Holding’s rating in the next 12 months if the Holding divests its subsidiary engaged in water supply and sewage, due to insufficient consolidation measures, and if the company fails to improve its profitability or takes on significantly more short-term debt than projected in S&P’s base scenario, or if it faces difficulties accessing external liquidity.

Additionally, S&P could consider a negative rating action on the Holding if they do the same for the City of Zagreb, or if they revise down their stance on the probability that the City will provide extraordinary support to the company in case of financial difficulties, sufficient and timely.

On the other hand, they could revise their outlook to stable as a result of confirming the ‘high’ probability of extraordinary support, as well as stabilizing the Holding’s standalone rating in line with the agency’s base scenario, the statement concludes.