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Rating action

Scope Ratings GmbH (Scope) has affirmed its issuer rating of BBB-/Stable on Germany-based investment holding Franz Haniel & Cie. GmbH and its financing subsidiary Haniel Finance Deutschland GmbH. The senior unsecured debt rating has been affirmed at BBB-; the short-term debt rating has been affirmed at S-2.

Concurrently, Scope has assigned a BBB-/Stable issuer rating, a BBB- senior unsecured debt rating and an S-2 short-term debt rating to Haniel’s new financing subsidiary Compartment Haniel Enkelfähig of NowCM Luxembourg S.A.

Rating rationale

The rating action reflects Scope’s unchanged view of Haniel’s good credit profile, which is developing in line with expectations, as displayed by a good business risk profile (assessed at BBB-) and a slightly stronger financial risk profile (assessed at BBB).

Haniel’s business risks continue to be determined by its portfolio structure and investment philosophy. While Haniel has to some extent used its financial leeway for investments in stakes of smaller companies at different development stages, e.g. such as KMK Kinderzimmer and BauWatch in 2021, the recurring income at the holding level remains strongly geared towards the TOP3 portfolio companies CWS, Takkt and BekaertDeslee. The TOP3 portfolio companies continue to account for around 90% of recurring income and around 70% of gross asset value. While Haniel’s portfolio includes a number of smaller ventures that could start contributing income to the holding in the medium term, concentration risks are likely to remain for the foreseeable future, as the amount of income from such companies will remain rather insignificant. As a result, any reduction in concentration risk is likely to be gradual only. At the same time, some past investments could prove to be less successful and lead to a write-down/disposal, as in the case of Optimar International in early 2024. However, Scope judges that Haniel’s portfolio, with a gross asset value of EUR 5.5bn at YE 2023, can absorb less successful investments.

On the positive side, Scope emphasises that concentration risks are somewhat offset by the strong diversification of income generation across the portfolio companies that provide recurring income to the holding company. Thus, the income at the holding level is supported by a diversified exposure at the portfolio company level to different markets, primarily across Europe, North and Latin America and Asia, but also to varied sectors with no substantial concentration risks.

While portfolio liquidity – as measured by the share of liquid assets and the ability to easily sell portfolio assets – remains another negative rating factor, Scope continues to attach less importance to the limited exposure to liquid/listed portfolio companies, given i) the investment holding’s long-term investment approach, and ii) no expected need for short-term asset sales in light of a sustained sufficient total cost cover and adequate liquidity. Therefore, the share of 15-30% of listed and other liquid assets (listed portfolio ventures + financial assets) of the gross asset value is not deemed as strongly detrimental to the credit profile.

On the contrary, Scope regards the company’s investment philosophy and the associated financial policy as credit-positive. Haniel’s investment philosophy is characterised by a long-term investment horizon and a focus on holding majority stakes in its portfolio companies, which supports the holding’s ‘buy-and-build’ approach. Such approach focuses on keeping and developing portfolio companies over the medium to long term (sometimes over decades) and it does not require frequent portfolio rebalancing which provides good transparency about the long-term structure of the investment portfolio. In addition, the investment strategy focuses on companies/investments that serve global and sustainable megatrends in the area of: i) health & wellbeing; ii) the circular economy; iii) climate change; and iv) robotics & automation. New portfolio investments are selected using a clearly defined ESG-oriented process (positive ESG factor), which increases the likelihood of a sustained investment portfolio. This qualitative investment approach is complemented by the holding’s very prudent financial investment approach, which goes hand in hand with a self-imposed maximum on the holding’s net financial debt of EUR 1.0bn.

The investment holding’s credit strength continues to be underpinned by its solid financial position, as evidenced by a consistently good total cost cover within a range of 1.0-1.3x as well as low and robust leverage.

Total cost cover recovered to 1.3x in 2023 (after 1.0x in 2022) following a normalisation of cash outflows for share buybacks. Despite the above-mentioned concentration risks around Haniel’s core income-generating portfolio companies, their cash contributions to the holding company are largely sufficient to cover recurring holding costs including shareholder remuneration. In 2024 and 2025, Scope expects a total cost cover at a level of around 1.2x, bolstered by continued cash income of EUR 190m – EUR 220m stemming from its core portfolio companies and interest income from financial assets. Such cash inflows can largely cover the lean holding costs, interest payments and distributions to shareholders, which are expected to amount to EUR 150m – EUR 180m in 2024 and 2025. In addition, Scope notes that Haniel is likely to use its flexibility in shareholder remuneration in order to ensure full cost cover should cash inflows fall short of expectations. However, Scope projects that cash inflows would have to fall short of forecasts by around 25% before total cost cover would fall below 1.0x.

Similarly, leverage, as measured by Scope-adjusted loan/value (LTV), remains supportive of the rating. LTV remained at an unchanged level at 13.5% at YE 2023 (compared to 14% at YE 2022), despite the slight increase in Scope-adjusted debt to around EUR 750m, thanks to the robust development of the investment portfolio’s market value at around EUR 5.5bn. Scope points out that the company retains its solid headroom to its self-imposed net debt ceiling of EUR 1.0bn, providing further scope for portfolio additions. Scope also emphasises that there is a significant buffer for the development of Haniel’s portfolio market value, which – all else being equal – would have to deteriorate by 30% before an LTV of more than 20% would be exceeded.

Haniel’s liquidity remains strong despite the significant amount of short-term debt at YE 2023. Upcoming debt maturities in 2024 and 2025 (EUR 629m ad EUR 60m respectively) are well covered, mainly by a significant amount of committed and undrawn multi-year credit lines in an amount of around EUR 750m supplemented by positive free operating cash flow (positive total cost cover) and a small cash buffer of EUR 9m at YE 2023. As a result, Scope does not see any refinancing risk that would necessitate the sale of any shareholdings or financial assets.

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating-change drivers

Scope maintains the Stable Outlook, reflecting the agency’s expectation that Haniel will maintain a sustained total cost cover in the range of 1.0-1.3x. Scope's rating case incorporates a total cost cover ratio of 1.2x for 2024 and 2025, which implies that cash income from portfolio companies and financial investments would have to be approximately 25% below Scope's forecasts to be unable to fully cover recurring holding company costs, including expected shareholder remuneration (i.e. before total cost cover falls below 1.0x).

A positive rating action could be justified if Haniel were to reduce the concentration risks associated with its income-generating portfolio companies while keeping its financial position at least unchanged. This could be the result of more portfolio companies entering into dividend payment status or profit sharing from more than the strongest three ventures at present. Alternatively, a higher rating could be considered if total cost cover is maintained above 1.3x while keeping LTV below 20%.

A negative rating action could result if the holding company's total cost cover is expected to deteriorate below 1.0x on a sustained basis, or if concentration risks to recurring income streams and gross asset value increase significantly.

Long-term and short-term debt ratings

Debt is issued at the level of Franz Haniel & Cie. GmbH (under a EUR 500m commercial paper programme) and its financing subsidiaries Haniel Finance Deutschland GmbH and Compartment Haniel Enkelfähig of NowCM Luxembourg S.A. under a EUR 5bn debt issuance programme. Debt issued by the two financing subsidiaries benefits from an unconditional and irrevocable guarantee from Franz Haniel & Cie. GmbH. Currently, no long-term public debt such as bonds or hybrids are outstanding.

Scope has affirmed the senior unsecured debt ratings at BBB-, consistent with the rating action on the underlying issuer rating.

Scope has affirmed the S-2 short-term debt ratings for Franz Haniel & Cie. GmbH and Haniel Finance Deutschland GmbH. The rating is based on the underlying BBB-/Stable issuer rating and reflects the more than adequate liquidity position as well as solid access to bank funding and the capital markets.

The new ratings on Compartment Haniel Enkelfähig of NowCM Luxembourg S.A. are in line with the ratings of the guarantor of debt, Franz Haniel & Cie. GmbH.

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for these Credit Ratings and/or Outlooks, (General Corporate Rating Methodology, 16 October 2023; Investment Holding Companies Rating Methodology, 19 May 2023), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings and/or Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
Lead analyst: Sebastian Zank, Managing Director
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The Franz Haniel & Cie GmbH Issuer Credit Rating/Outlook was first released by Scope Ratings on 23 February 2016. The Credit Rating/Outlook was last updated on 17 April 2023.
The Franz Haniel & Cie GmbH short-term Credit Rating and Senior unsecured debt Credit Rating were first released by Scope Ratings on 21 February 2017. The Credit Ratings were last updated on 17 April 2023.
Haniel Finance Deutschland GmbH Issuer Credit Rating/Outlook was first released by Scope Ratings on 24 February 2017. The Credit Rating/Outlook was last updated on 17 April 2023.
Haniel Finance Deutschland GmbH short-term Credit Rating and Senior unsecured debt Credit Rating were first released by Scope Ratings on 27 June 2018. The Credit Ratings were last updated on 17 April 2023.
The Compartment Haniel Enkelfähig der NowCM Luxembourg S.A. Credit Ratings/Outlook were first released by Scope Ratings on 19 April 2024. 

Potential conflicts
See http://www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings.

Conditions of use/exclusion of liability
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.