Mowi ranked BBB+ by crediting rating agency

Salmon farmer Mowi, which issues bonds to raise funds for capital expenditure, has been given a first-time ‘BBB+’ long-term issuer rating by Nordic Credit Rating (NCR).

NCR says the long-term issuer rating is underpinned by Mowi's strong profitability and cash flow, as well as moderate financial leverage. It also reflects the company’s strong market position as the world’s largest salmon farmer and the only one with operations in all major global salmon farming regions.

The rating also takes account of Mowi's fully vertically integrated operations, which help offset the impact of volatility in product and raw-material prices.

Political risk

NCR says its rating is constrained by the seafood sector’s historical earnings volatility, due to unstable prices resulting from variable supply. It is also constrained by biological challenges, with the industry particularly impacted by higher costs for sea lice treatment, which NCR expects will lead the sector to invest in new farming technology.

“These factors have also contributed to volatile EBITDA margins for Mowi in the past. In addition, the sector faces political risk due to its profitability and perceived environmental impact. This was exemplified by the Norwegian government’s introduction of a ‘resource rent’ tax on aquaculture last year,” writes NCR in its rationale for the rating.

NCR rates Mowi as having a stable outlook, reflecting NCR’s view that low salmon supply growth will support global prices over the next three years.

NOK 94 per kg

“We expect an annual average salmon price of around NOK 94 per kg (Oslo) over this period, albeit with strong seasonality. In addition, we believe that Mowi will keep adverse biological factors under control and that recent cost inflation is slowing,” says NCR.

“Our forecasts take into account the effect of the resource rent tax on salmon farming in Norway. We believe that shareholders will bear the brunt of the impact, as we expect that the company will reduce dividend payments to offset the negative impact and reconsider its long-term investment plans.

“We could raise the rating if the company commits to a moderate financial risk profile, for example NCR-adjusted funds from operations/net debt above 60% and EBITDA/net interest above 20x, and we see more stable supply of Atlantic salmon, leading to reduced price uncertainty and improved margin stability.

Higher leverage

“We could lower the rating if we see a persistent increase in biological problems such as disease and sea lice, or higher financial leverage, leading to net NCR-adjusted funds from operations/net debt below 30% and EBITDA/net interest below 10x over a protracted period, or lower demand for Atlantic salmon.”

Salmon farming heavyweights SalMar and Lerøy Seafood Group, which also issue bonds, have the same BBB+ rating as Mowi from NCR, while Austevoll Seafood ASA, which among other things is the majority owner of Lerøy, has a BBB- rating.