EDITOR'S NOTE (21 Feb. 2022): This report has been republished to correct the senior unsecured issue rating in the first paragraph.
Nordic Credit Rating (NCR) said today that it had revised its outlook on Norway-based salmon farmer SalMar ASA (SalMar) to negative from stable. At the same time, the 'A-' long-term issuer rating, 'N-1+' short-term rating, and 'BBB+' senior unsecured issue rating were affirmed.
Rating rationale
The outlook revision reflects the potential for increased financial leverage and weakened net interest coverage following SalMar's announcement that it plans to acquire Norwegian salmon farmer NTS ASA (NTS).
SalMar has said it intends to launch a cash offer to acquire all of the outstanding shares in NTS for NOK 15.1bn, paying 20% cash and 80% in the form of SalMar shares. The bid is contingent upon at least 50% acceptance from NTS' shareholders. As of 16 Feb. 2022 SalMar had received irrevocable pre-acceptances of the offer from 50.1% of the shareholders. The prospective acquisition will require regulatory approval.
In addition to salmon farming, NTS owns 72.1% of listed wellboat operator Frøy ASA. Last year, NTS acquired salmon farmer Norway Royal Salmon (NRS) in competition with SalMar. NTS expects to harvest 82,000 tonnes of salmon in 2022 compared with SalMar's guidance of 214,000 tonnes, suggesting the merger would increase the combined entity's production by 38%. SalMar and NTS have several overlapping operations and SalMar believes that NTS' salmon farming business will create significant synergies.
As of 31 Dec. 2021, SalMar had sufficient cash and credit facilities to finance the proposed transaction, but we note that NTS is highly leveraged following its acquisition of NRS. Given NTS' net debt stood at about NOK 13.5bn as of 31 Dec. 2021 (compared with SalMar's net debt NOK 5.5bn), the combined entity's leverage is likely to increase significantly. SalMar has various options to maintain net debt/EBITDA at levels commensurate with our current assessment of the company's financial risk, but we do not know to what extent or when the company might use such options, which could affect our view of its risk appetite.
Negative outlook
The negative outlook reflects the possibility that the planned acquisition could permanently increase SalMar's leverage and negatively impact its credit metrics even though the transaction would represent a long-term improvement in size and scale. We could lower the long-term issuer rating if NCR-adjusted net debt/EBITDA were to remain permanently above 2.0x because of the acquisition of NTS' interest-bearing debt, or if the long-term outcome of the acquisition negatively affects our view of the company's risk appetite. We could revise the outlook to stable if SalMar commits to mitigating action to keep NCR-adjusted net debt/EBITDA permanently below 2.0x and demonstrates a restrained risk appetite.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | A- | A- |
| Outlook: | Negative | Stable |
| Short-term issuer credit rating: | N-1+ | N-1+ |
| Senior unsecured issue rating: | BBB+ | BBB+ |
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.