S&P announced yesterday that it has placed its 'BB' long-term corporate credit rating on BorsodChem on watchlist with negative implications following the takeover bid from Permira. The move reflects S&P’s concerns regarding BorsodChem's potential higher debt load and subsequent weaker credit protection measures if this sale materializes. Permira is expected to finance the takeover by putting additional material debt into the group.
Our view:
The statement of S&P should normally be taken as negative, however, the market now focuses on the likely offer on minority shares rather than potentially higher interest burden in the future. Nevertheless, we recommend selling BorsodChem shares as the upside is a mere 7.5% to HUF 3,000, but the stock could fall substantially if the deal fails.