S&P downgrades Czech CPI’s rating to junk with a negative outlook

S&P downgrades Czech CPI’s rating to junk with a negative outlook
CPI's Quadrio development in the centre of Prague. / CPI
By Albin Sybera June 4, 2024

Luxembourg-registered CPI Property Group (CPI PG), controlled by Czech billionaire Radovan Vitek, has been downgraded by S&P Global rating agency from 'BBB-' to 'BB+', a junk rating, with a negative outlook.

S&P pointed to the deterioration in debt metrics including the Ebitda interest coverage in its downgrade of the senior notes and also downgraded the subordinate hybrid notes to 'B+' from 'BB'. S&P's downgrade reflected its view of CPI PG’s efforts to reduce the company’s debt exposure quickly enough.

CPI PG described the downgrade as “unexpected,” stating in a press release that it “had no indication a downgrade was coming” and that S&P assigned a 'BBB-' rating to its recent bond issuance. CPI issued green bonds worth €500mn at Dublin’s Euronext in mid-May.

“S&P’s decision is disappointing to CPIPG,” the company also stated, adding that “our business plans clearly indicate that the group will remain within the thresholds for an investment grade rating”.

In a market comment, Czech-based J&T Banka described the news negatively, noting that CPI PG “is now aggressively pursuing divestments to reduce debt”. J&T Banka expects “the property price correction that has been underway in Europe for the past two years will fade and may bottom out this year”.

Hedge fund Muddy Waters issued two reports over the past year accusing CPI of inflating the value of its assets, hiding related party transactions, and misleading investors. These allegations knocked the value of its shares and bonds and were firmly denied by the company.

CPI also published unaudited financial results for the first quarter of 2024, showing that net debt was reduced by more than €250mn versus year-end and that net debt/Ebitda declined by 0.6x to 12.5x on annualised basis. Net loan-to-value (LTV) decreased to 51.9%, down by 0.4 percentage points from year-end.

The company stated earlier that its goal was to reduce LTV below 50%. In recent months, CPI has been inviting more investors into its projects and sold some of these, including the Swiss skiing resort Crans Montana. It also sold half of its hotel business to Best Hotel Properties in which Czech-Slovak J&T Group is a shareholder.   

Consolidated adjusted Ebitda was €199mn  and total available liquidity was €1.3bn. Total assets were €21.5bn and the CPIPG portfolio totalled €19.2bn.