Nordic Credit Rating (NCR) said today that it had affirmed its 'A-' long-term issuer rating on Norway-based Kongsberg Gruppen ASA (Kongsberg). The outlook is stable. At the same time NCR affirmed the 'N-1+' short-term rating. NCR has also assigned 'A-' issue ratings to Kongsberg's senior unsecured bonds.
Rating rationale
The long-term issuer rating reflects Kongsberg Gruppen's leading position in its niche markets, strong cash position and cash flow, and low financial gearing. It is constrained by cyclical weakness in the company's shipping and oil service operations, its small size in comparison with its peers, and its margins which are comparable with those of major competitors.
We lower our standalone credit assessment by one notch due to reduced availability of funding from investors adverse to defence industry activity, even though the Russian invasion of Ukraine appears to have made some investors rethink their position. Conversely, we add back a notch to reflect the likelihood that the majority owner, the Norwegian government, would support the company if needed. In sum, the adjustment factors are neutral.
Stable outlook
The stable outlook reflects our expectation that Kongsberg Gruppen will maintain its position as a strategic investment for the Norwegian government and that the government will maintain its controlling interest. We expect that the conflict in Ukraine will have only a moderate effect on most of the shipping industry. We also expect that spending on defence will increase and that demand for Kongsberg Gruppen's advanced solutions will remain high. In addition, we assume that the company will maintain strong financial credit metrics.
We could raise the rating to reflect a commitment to credit metrics close to current levels, an increased proportion of income from defence at higher margins, or a more positive investor attitude to defence companies. We could lower the rating to reflect a reduction in government commitment, increased financial gearing (leading to NCR-adjusted net debt/EBITDA above 1.5x over a protracted period), or lower profitability (leading to an EBITDA margin of below 10%).
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | A- | A- |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N-1+ | N-1+ |
| Senior unsecured issue rating: | A- | None |
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Mille Fjeldstad, analyst, +4799038916, mille.fjeldstad@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 18 Feb. 2022, NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022 and NCR's Rating Principles published on 16 Sep. 2019. For the full regulatory disclaimer please see the rating report.