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Rating action

Scope Ratings GmbH (Scope) has today affirmed the A/Positive issuer rating on France’s Air Liquide S.A. and its financing subsidiary Air Liquide Finance S.A. The S-1 short-term debt rating and A senior unsecured debt rating were also affirmed.

Rating rationale

The rating action is predicated on a consistent trend in deleveraging that, in Scope's view, is fortifying the company's financial risk profile. Alongside, the firm maintains a strong business risk profile underscored by a solid market position and stable profitability. Nonetheless, while performance remains consistent, there is scope for further enhancement, particularly through closing the profitability gap with other market players.

Scope has affirmed Air Liquide’s financial risk profile at A-, while recognising that there has been some improvement within this category. This is primarily driven by improved leverage credit ratios, namely Scope-adjusted debt/EBITDA and Scope-adjusted funds from operations/debt, which have been steadily improving over the past two years. Scope-adjusted debt/EBITDA currently stands at 1.5x, and Scope expects it to remain at that level in 2024 with a slight improvement in 2025 to 1.4x. This positive trend is primarily driven by robust and stable cash generation. At the same time, operating and discretionary free cash flows are constrained by considerable capital expenditure, which is inherent to Air Liquide’s business model but quite elevated for the specialty chemicals sector in general. Additionally, Scope estimates that the company will maintain a significant level of cash on its balance sheet each year. Coupled with its access to multiple financing tools in both private and public capital markets, this will result in internal and external liquidity coverage ratios adequate to sufficiently cover borrowings maturing in 2024 (EUR 2.2bn) and 2025 (EUR 1.2bn).

Air Liquide's issuer rating is also supported by its business risk profile, which has been affirmed at A+, reflecting its market position, expertise, diversification, and profitability in the specialty chemicals industry, as well as its long-term contracts and ability to pass on costs effectively. The company's strong market position as the second-largest global producer of industrial gas in a concentrated market with few global actors contributes significantly to the rating. Furthermore, Air Liquide's expertise in the engineering of air separation units, together with its number one position as an international patent holder for hydrogen production, means the company is well placed in terms of the energy transition and reinforces its market position. Air Liquide's broad geographic and customer diversification is also noteworthy. Highly cyclical end-markets account for a substantial amount of sales. However, this is partially offset by the company’s exposure to countercyclical industries such as healthcare, which represents 15% of total revenue, as well as its industrial merchant segment, which provides 43% of total revenue and is composed of a granular base of customers from different industries. Air Liquide's profitability in the specialty chemicals industry is strong, stable and benefits from good business visibility derived from medium-to long-term contracts. These contracts include take-or-pay clauses and clauses to pass on energy costs effectively. Scope has evaluated Air Liquide's ESG approach and considers product innovation to be a positive factor, driven by Air Liquide's steps in the transition towards greater green investment, exemplified by Air Liquide's aim to invest approximately EUR 8bn by 2035 to serve the low-carbon and renewable hydrogen markets as well as the fact that out of the 12-month investment opportunities more than 40% are focused on energy transition, hence putting a strong emphasis on the long-term sustainability of its operations. Scope believes that addressing these environmental considerations can lead to better material, resource, and process efficiency, as well as business models better focused on the circular economy. In turn, these aspects could translate into a positive impact on credit-relevant factors such as market share, diversification, and profitability.

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

Outlook and rating-change drivers

The Positive Outlook reflects the expectation that Scope-adjusted debt/EBITDA will solidify at 1.5x and below over the medium term despite increased capex and higher pressure on free operating cash flow. An upgrade could be considered if Scope’s expectations materialise and Air Liquide’s leverage (Scope-adjusted debt/EBITDA) solidified at a level of 1.5x and below. This could be the consequence of successful efforts to lift profitability, closing the gap with US-based competitors, and/or a shareholder remuneration more aligned with cash preservation goals. A negative rating action, such as a return to a Stable Outlook, could be considered if Scope’s expectations of a strengthened leverage were not to materialise. Further ratings pressure is deemed remote due to the solid headroom to a lower rating.

Long-term and short-term debt ratings

Scope has affirmed the A rating on senior unsecured debt. Currently all long-term market debt is issued by and consolidated under Air Liquide Finance S.A., the group's financing subsidiary, which benefits from an unconditional and irrevocable guarantee from Air Liquide S.A.

Scope has also affirmed the S-1 short-term debt rating. This is based on the underlying A/Positive issuer rating and reflects the company’s strong liquidity position and multiple available financing tools.
 
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; Chemicals Rating Methodology, 16 April 2024), 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: Ivan Castro Campos, Director
Person responsible for approval of the Credit Ratings: Sebastian Zank, Managing Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 9 July 2020. The Credit Ratings/Outlooks were last updated on 5 May 2023.
 
Potential conflicts
See 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.