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Rating action

Scope Ratings GmbH (Scope) has today affirmed Aker’s long-term issuer rating at BBB-/Stable. Scope has furthermore affirmed the senior unsecured debt rating at BBB- and the short-term debt rating at S-2.

The affirmation is based on the unchanged assessment of both the business risk and the financial risk profile. However, Scope notes that the underlying business risk profile has improved following the completion of the Solstad refinancing and the updated investment strategy of prioritising larger, cash-generative investments and the strong commitment to deleveraging, which will strengthen the financial risk profile.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

Business risk profile: BB+ (unchanged). Aker’s business risk profile remains somewhat constrained by modest, but likely improving, portfolio sustainability and diversification. This reflects the still high concentration of recurring cash income and asset value on only a few core holdings, though Scope notes an improvement year-over-year.

The company’s portfolio continues to be focused on Aker BP, which comprised 48.5% of gross asset value as of Q2 2024. The three largest core holdings represented around 70%. Scope anticipates that the concentration of Aker’s recurring dividend income on Aker BP will improve towards 75% in 2025-2026, down from 90% in 2023. This is based on the prospective dividend capacity of Aker Solutions and Solstad Maritime Holding following the completed refinancing of Solstad in June 2024. The American Shipping Company is considered on a look-through basis, with dividends received from Solstad Maritime Holding assumed to be upstreamed to Aker.

Strong portfolio liquidity continues to support the company’s business risk profile, with the share of listed assets still at a high level of around 75%. Another strength of the business risk profile is Aker’s proven investment philosophy. The philosophy reflects the company’s long-term investment approach and active ownership strategy, under which it has achieved a strong track record of growth in net asset value without jeopardising any financial policy targets.

Aker’s capital allocation may prioritise more diversity of recurring upstream dividends going forward. This is based on the updated strategy, presented in Aker’s Q1-Q2 2024 reports, to prioritise larger, cash-generating holdings and to reduce net interest-bearing debt towards zero by 2027. Scope therefore believes the ongoing streamlining of the portfolio could continue over the next few years, adding to actions seen in the past year, such as the Solstad refinancing, the announced sale of the Philly Shipyard, and the announced sell-down in the Feed Ingredients business of Aker BioMarine.

Besides the addition of Solstad Maritime Holding, Scope sees the above-mentioned strategy update as positive with regard to the directional development of Aker’s business risk profile. This is because more recurring dividend income diversity would help reduce portfolio concentration, thus addressing one of Aker’s main business risks.

Financial risk profile: BBB (unchanged). Aker’s financial risks are lower than its business risks, as highlighted by low leverage and a resilient total cost cover* of around 1x in the past. The financial risk profile could be raised in the medium term, as forecasted credit metrics are commensurate with a stronger assessment than BBB.

Aker’s recurring cash income is expected to reach NOK 4bn in 2024, of which the majority has already been received. This exceeds Scope’s previous expectation by approximately NOK 0.4bn, mainly due to higher dividend growth at Aker BP (9.1% received versus 5% expected in the last review) and Aker Solutions (NOK 2.00/share received versus NOK 1.00/share expected) in addition to a positive impact from the NOK depreciation against the USD. Scope expects further growth in 2025-2026 given Aker BP’s progressive dividend policy (target of at least 5% annual growth) and the inclusion of full-year dividends from Solstad Maritime Holding.

Scope expects total cost cover of around 1.2x in 2024, improving to about 1.5x in 2025-2026, with recurring cash income outgrowing total costs (including dividends paid). Scope takes some comfort from projected income growth being largely backed by the defined, committed dividend policies of Aker BP and Aker Solutions, as well as Solstad Maritime Holding’s public guidance that quarterly dividends will commence in H2 2024.

Dividends paid is the main cost item, constituting around 80% of total costs over 2021-2023, and therefore an important assumption for the level of total cost cover. Scope’s base case anticipates the gradual, stable growth of Aker’s dividend distributions in line with the precedent over 2021-2023 of NOK 1.00/share per annum – as long as this satisfies the longstanding dividend policy of paying out 2%-4% of net asset value to shareholders.

Scope expects Aker’s loan/value ratio to decrease from the normalised target range of 10%-15%. This is based on the company’s aim, stated in the Q1-Q2 2024 reports, to reduce net interest-bearing debt towards zero by 2027. As of Q2 2024, the loan/value ratio stood at 14%, up from 11% at YE 2023. The increase was mainly driven by the NOK 2.25bn investment in Solstad Maritime Holding in January 2024, which temporarily increased the level of Scope-adjusted debt, which will be reduced to 12% during the second half of 2024 through incoming dividends.

Liquidity: adequate. Aker’s liquidity position remains solid and adequate, especially supported by the large amount of unused committed credit facilities of NOK 5.3bn as of Q2 2024. This leads to a robust overall liquidity ratio of well above 200% in the next 12 months, as the only debt maturity in 2024-2026 is currently a NOK 1.4bn bond maturing in November 2024.

Supplementary rating drivers: credit-neutral. Scope has made no rating adjustments related to peer group considerations, parent support, or governance and structure.

Outlook and rating sensitivities 

The Outlook is Stable, reflecting Scope's expectation that total cost coverage will improve towards 1.3x over the next 12-18 months, as well as the improved diversification of recurring dividend income, reflecting recent capital allocations, both of which provide increased headroom for the current rating. The updated investment strategy of prioritising larger, cash-generative investments underlines that recent capital allocations will continue. This addresses one of the main rating constraints, namely the high dependency on Aker BP.

The upside scenarios for the ratings and Outlook are (individually):

1. Total cost cover of 1.3x or above on a sustained basis.
    
2. Reduced portfolio concentration through more diversification of recurring income from mature holdings.

The downside scenario for the ratings and Outlook are (individually):

1. Total cost cover sustained below 1.0x.
    
2. LTV to significantly increase above 15% on a sustained basis.

Debt ratings

Scope has affirmed the rating for senior unsecured debt at BBB-, in line with the rating action on the underlying issuer rating.

The S-2 short-term debt rating has also been affirmed, reflecting the issuer rating of BBB-/Stable as well as better-than-adequate short-term debt coverage and better-than-adequate access to bank and capital markets financing.

Environmental, social and governance (ESG) factors

Scope has not identified any environmental, social or governance (ESG) considerations with a significant effect on Aker’s credit quality. Furthermore, Scope sees Aker’s nature as an investment holding company as providing better flexibility than traditional corporates to handle longer-term ESG risks, since underlying asset exposures can be rotated more easily.

The longer-term transition risks of the oil and gas industry are the most prevalent negative environmental factor in Aker’s current portfolio. Measured by gross asset value, Aker has reduced the exposure to oil and gas production from a peak of around 65% in 2019 to below 50% as of Q2 2024. In the same period, the exposure to climate solutions, renewable energy, industrial digitalisation and healthy living has growrn to over 20%. Scope believes that Industry Capital Partners will further support Aker’s green investment ambitions, albeit at a slower ramp-up pace than anticipated following the launch in 2021.

All rating actions and rated entities 

Aker ASA

Issuer rating: BBB-/Stable, affirmation

Senior unsecured debt rating: BBB-, affirmation

Short-term debt rating: S-2, affirmation

*All credit metrics refer to Scope-adjusted figures.

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 Outlook, (General Corporate Rating Methodology, 16 October 2023; Investment Holding Companies Rating Methodology, 17 May 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 Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings and/or Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Thomas Faeh, Executive Director
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 17 August 2022. The Credit Ratings/Outlook were last updated on 24 August 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, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties. 

Conditions of use/exclusion of liability
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