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Rating action

Scope Ratings GmbH (Scope) has today upgraded the issuer rating of Norway’s utility Hafslund AS to A/Stable from A-/Positive. Scope has also upgraded the senior unsecured debt rating to A from A-, while the short-term debt rating has been affirmed at S-1.

The upgrade reflects Scope’s view that stronger credit metrics and cash flow generation are supported by sustained above-average power prices and reduced pressure from a scaled-back investment programme. As such, the company is deemed to show credit metrics that warrant an improved financial risk profile, which is considered robust enough to withstand stress and lower-than-forecast achievable power prices.

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

Key rating drivers

The issuer rating reflects a standalone credit assessment of A- and a one-notch uplift reflecting the utility's status as a government-related entity.

Business risk profile: BBB+ (unchanged). Hafslund’s business risk profile remains underpinned by a strong competitive position in the Nordic utility sector. The company benefits from its leading role in Norwegian power generation, contributing 10–15% of national electricity consumption through its predominantly hydro-based portfolio, which ensures a highly favourable position in the merit order system (positive ESG factor related to resource management). Hafslund’s carbon intensity is well below average at <20 gCO₂e/kWh, supporting strong environmental credentials and fostering strong resource management and product innovation.

The utility’s operating profile is bolstered by robust cash flows from a 50% stake in Norway’s largest distribution grid operator Eidsiva Energi AS (rated A-/Stable), and further enhanced by the robust cash flows from Celsio, Norway’s largest district heating company (positive ESG factor related to resource management, circular economy and product innovation). These regulated or quasi-regulated businesses contribute to 10–15% of recurring earnings and help offset the volatility of unregulated power generation.

Hafslund’s strategic location in southeastern Norway, combined with solid reservoir capacity (covering 50% of annual production) and its low-cost hydro operations, supports high utilisation and achievement of attractive market prices. This supports Hafslund’s continuously strong operating profitability which remains a core credit strength, with a consistently solid Scope-adjusted EBITDA margin* of above 60% at the group level and a ROCE of 15% on average. Although a growing share of earnings from the lower-margin district heating as well as retreating energy prices could dilute group margin slightly, Scope expects profitability measures to remain above 60% and 10%, respectively, in the medium term.

Nevertheless, Hafslund’s business risks remain important, given the company’s high dependency on non-controllable external factors, such as volatile power prices in the relevant pricing zones, and its limited hedging activities. Furthermore, the company’s focus on the Norwegian market restricts its geographical diversification. The concentration of its largest power generation assets across its portfolio of over 80 power plants also creates credit risks, which are gradually decreasing as the company expands its power generation portfolio through organic growth and bolt-on acquisitions of power generation capacities.

Financial risk profile: A (improved from A-). Scope believes that Hafslund’s credit metrics and cash flow generation have settled at a sustained level which warrant an improved assessment of its financial risk profile. This is signalled by a sustainably low leverage, very strong interest coverage and improved free operating cash flow (FOCF) than projected under the previous rating case.

The company’s leverage, as measured by debt/EBITDA, has consistently remained at a low level over the past three years, trending between 0.5x and 1.5x. This reflects strong operational performance and effective deleveraging, aided by solid cash accruals since the debt peak in 2020. Scope strikes that leverage is very solid when considering the company significant exposure to subordinated shareholder loans which account for around 25% of total debt. Updated forecasts based on a conservative power price curve (48–55 øre/kWh), the impact from recent acquisitions of power plants, and the company’s capex plan over the next few years, which Scope regards as less extensive as in 2024, support a projected leverage range of 1.8x–1.9x from 2025 to 2027. This reflects stable debt for 2025 to 2027 at around NOK 18bn (increased following the acquisition of several power plants from Orkla ASA) and an annual EBITDA settling within a range of NOK 9.6bn to 10.2bn. Scope’s sensitivity analysis confirms the robustness of this projection, with leverage remaining below 2.0x even under further stressed price scenarios.

The agency’s improved view of Hafslund’s ability to fund its investment programme primarily through internal sources, such as operating cash flow, supports a higher financial risk profile. Unlike the previous rating case, Scope projects that Hafslund will consistently generate positive FOCF within a range of NOK 2.0bn to NOK 2.6bn over the next few years. This is based on greater transparency regarding operating cash flow, stemming from the current power price curve, as well as the company’s less extensive investment programme in the coming years. Scope expects the latter to average around NOK 1.75bn per annum over the next three years, compared to an average of NOK 2.1bn per annum in the previous rating case. Although FOCF remains somewhat volatile due to tax timing effects and the cyclical nature of energy markets, Hafslund’s improved capex coverage indicates that its debt profile will likely be more robust and stable in the future.

Ultimately, debt protection remains very strong, with EBITDA/interest coverage forecast to stay within 10x–15x, supported by Hafslund’s robust operating performance and its solid cash buffer and considerable interest income, that somewhat mitigate the company’s significant exposure to floating-rate debt.

Liquidity: adequate (unchanged). The liquidity profile remains very strong as signalled by liquidity ratios consistently standing above 200%. This is supported by a balanced debt maturity profile, a substantial cash buffer of NOK 10.3bn at end-Q1 2025, access to a committed credit facility of NOK 2.5bn and expected positive FOCF. Hafslund’s liquidity is further supported by strong access to diverse funding sources, such as bonds, bank loans, private placements, commercial paper and shareholder loans, which reinforces its (re)financing flexibility.

Supplementary rating drivers: +1 notch (unchanged). The one-notch uplift reflects the company’s status as a government-related entity, with the City of Oslo holding a 100% stake. This assessment is based on Scope’s bottom-up ratings framework under its Government-Related Entities Rating Methodology. It incorporates a conservative assessment of the public sponsor’s capacity to provide a credit uplift and its medium willingness to provide financial support, if needed. This approach aligns with that of other municipality-owned utilities in Norway rated by Scope.

Although Hafslund’s financial policy is considered to have no impact on the rating, Scope recognises that it contributes to a consistently strong financial risk profile. Hafslund remains focused on retaining a solid investment-grade rating and actively monitors the quantitative and qualitative factors affecting its creditworthiness. Scope emphasises in particular the utility’s public commitment to maintaining an FFO/debt ratio of over 20% over time, which provides reassurance that the company will manage its capex and shareholder remuneration in a way that will not endanger the rating.

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

Outlook and rating sensitivities

The Stable Outlook reflects Scope’s expectation that Hafslund’s leverage, as measured by the debt/EBITDA, will remain below 2.0x over the next few years. This is supported by achievable average power prices within the range of 48–55 øre/kWh and annual investments within the range of NOK 1.5–2.0bn, which backs up positive FOCF and broadly stable indebtedness.

The upside scenario for the ratings and Outlook is:

1. Improved BRP assessment, e.g. through improved segmentation and diversification, while maintaining a strong FRP (remote)

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

1. Sustained leverage (debt/EBITDA) above 2.0x
    
2. Loss of GRE status due to change of ownership (remote)

Debt ratings

The rated debt is issued by Hafslund AS. Senior unsecured bonds display standard bond documentation, including pari passu and negative pledge.

Following the upgrade of the underlying issuer rating, Scope has also upgraded the rating for senior unsecured debt to A from A-.

The short-term debt rating has been affirmed at S-1 which is based on the underlying A/Stable issuer rating and the utility’s consistently robust short-term debt coverage, as well as strong access to external funding from banks and debt capital markets.

Environmental, social and governance (ESG) factors

As a producer of clean hydroelectric power and to an increasing extent other renewable energy sources, Hafslund‘s business model revolves around sustainability, fulfilling the UN’s Sustainable Development Goal 7 (Affordable and clean energy). This is signalled by the company’s very low carbon intensity, with a specific carbon intensity of less than 20 gCO2e/kWh. Such a position i) rules out transition risks; and ii) ensures high utilisation of the hydropower generation portfolio and very strong position in the merit order, a high margin, robust cash flow generation and limited headwinds from regulation and political interference. Moreover, the exposure to hydropower generation guarantees a consistent GRE status. Eventually, Hafslund’s exposure to the generation of district heating and cooling is primarily based on waste incineration, which promotes a circular economy. Over the next few years, the company develops the world’s first climate-positive waste incineration plant with the development of carbon capture and storage abilities. Such project will further strengthen the company’s ESG profile (beyond 2029 when the facility is expected to be completed), providing carbon negative end-treatment of residual waste (resource management and product innovation).

All rating actions and rated entities

Hafslund AS

Issuer rating: A/Stable, upgrade

Short-term debt rating: S-1, affirmation

Senior unsecured debt rating: A, upgrade

*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, 14 February 2025; Government Related Entities Rating Methodology, 10 December 2024; European Utilities Rating Methodology, 17 June 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: Sebastian Zank, Managing Director
Person responsible for approval of the Credit Ratings: Marlen Shokhitbayev, Senior Director
The Credit Ratings/Outlook were first released by Scope Ratings on 9 July 2021. The Credit Ratings/Outlook were last updated on 5 June 2024.

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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