Nordic Credit Rating (NCR) said today that it had affirmed its 'A-' long-term issuer rating on Norway-based Kongsberg Gruppen ASA (Kongsberg Gruppen). The outlook is stable. At the same time NCR affirmed the 'N-1+' short-term rating. The issuer ratings are no longer under criteria review.
Rating rationale
On 18 Feb. 2022, NCR published its new Group and Government Support Methodology and placed the issuer rating on Kongsberg Gruppen under criteria review. Kongsberg Gruppen is 50.004% owned by the Norwegian government. We view Kongsberg Gruppen as of 'strategic interest' to the government, which maintains a 'controlling ownership' stake under our definition. According to the Government Support definitions in the new criteria, this allows a one- or two-notch increase from our 'bbb+' standalone credit assessment of Kongsberg Gruppen. We have opted to maintain the one notch increase we attribute for government support, which is reflected in the 'A-' long-term issuer rating on the company, which we now affirm.
Even with an established willingness and ability to support Kongsberg Gruppen's strategy, the company's relationship with the government has a material impact on our standalone credit assessment. For example, the company's large contracts and orderbook with the government are, in our view, a strong driver of business risk and market position. While we believe that the Norwegian government is likely to support Kongsberg Gruppen in an event of distress, we also believe that in the event of corporate bankruptcy, the Norwegian state would retain ownership of the defence technology that the group develops on behalf of the Norwegian Armed Forces. Furthermore, we believe that situations could arise in which it is deemed politically imprudent to support the company.
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. In addition, we expect reduced impact from the COVID-19 pandemic, leading to improved market conditions for the company's maritime division. We also expect spending on defence to remain at high levels and demand for Kongsberg Gruppen's advanced solutions to remain strong. In addition, we assume that Kongsberg Gruppen will make no significant debt-financed acquisitions over the next few years. We could raise the rating to reflect improved conditions in most markets, leading to stronger revenue growth or an increased level of income from the defence business at higher margins. We could lower the rating to reflect any reduction in government commitment, or increased financial gearing, leading to NCR-adjusted net debt/EBITDA of above 2.5x, which would be broadly equivalent to the company's own reported net debt/EBITDA of above 1.5x. We could also lower the rating if profitability declines and leads to an EBITDA margin of less than 10%.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | A- | A- |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N-1+ | N-1+ |
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.