Nordic Credit Rating (NCR) said today that it had affirmed its 'A-' long-term issuer rating on Norway-based SalMar ASA (SalMar). The outlook is negative. At the same time NCR affirmed the 'N-1+' short-term rating. At the same time NCR affirmed the 'BBB+' senior unsecured issue rating.
Rating rationale
The long-term issuer rating reflects Salmar's strong profitability in relation to its industry peers. This is attributable to cost-efficient production, excellent farming locations, strong cash flow, and moderate financial leverage. On 14 Feb. 2022, SalMar launched a voluntary share offer for Norwegian salmon farmer NTS ASA (NTS). In our opinion a successful transaction could constrain the rating if it results in a weaker financial profile for the merged entity.
The rating is currently constrained by the sector's historical earnings volatility due to unstable prices as a result of variable supply and the fact that salmon farmers are effectively price takers, particularly in recurring periods of oversupply. It is also constrained by environmental challenges and disease problems, which we take into account in our assessment of the operating environment. Positively, we note that salmon is a healthy food product, with a lower environmental footprint than other sources of protein.
We have adjusted our view of financial risk appetite downward to reflect the company's growth strategy, including the acquisition of NTS, and high dividend payouts.
Negative outlook
The negative outlook reflects our view that SalMar's financial leverage could increase substantially and net interest coverage weaken upon completion of the NTS acquisition. We believe the transaction could permanently weaken the company's financial ratios, effectively offsetting any operational benefits such as increased scale. We could lower the long-term issuer rating if the acquisition changes our view of the company's financial risk profile; specifically if NCR-adjusted net debt/EBITDA were to remain above 2.0x over a protracted period. We could also lower the rating to reflect a more aggressive financial risk appetite. We could revise the outlook to stable if SalMar were to actively commit to keeping NCR-adjusted net debt/EBITDA permanently below 2.0x and demonstrate a more restrained risk appetite.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | A- | A- |
| Outlook: | Negative | Negative |
| Short-term issuer credit rating: | N-1+ | N-1+ |
| Senior unsecured issue rating: | BBB+ | BBB+ |
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Gustav Nilsson, analyst, +46735 42 04 46, gustav.nilsson@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.