We have initiated our long-term corporate rating for Sofiproteol SA at A- and our instrument rating for the expected NEU MTN program for up to €75m at A-. Meanwhile we have reaffirmed our short-term rating at SR1 on Sofiproteol’s NEU CP program for up to €300m.
Sofiproteol SA is a French investment company, a subsidiary of the French group, Avril, which is specialised in the oils and protein sectors. Avril SCA, the ultimate holding company of Avril, owns 70.6% of the company, the rest being owned by financial institutions and companies from the agricultural world. Sofiproteol is regulated by the Autorité de Contrôle Prudentiel et de Résolution (ACPR), the body in charge of monitoring banking and insurance activities in France. It was created in 1983, originally as an investment vehicle granting term loans and taking minority stakes in companies in the oils and protein sectors in France, before it became an industrial group itself, known as Avril. In 2014 Sofiproteol became an independent investment company within the Avril group with two separate businesses. First, it invests in agribusinesses and food industries, especially companies in the oils and protein sectors, using Sofiproteol’s equity. Investments are mainly made through minority equity stakes. Depending on the needs of companies, Sofiproteol may also invest through bonds and set up current accounts in addition to its equity investments. This business accounts for around 50% of total adjusted assets including cash and cash equivalents. Sofiproteol’s investment strategy aims at fostering the development of the agricultural world. Second, in order to optimize cash not invested in equity, Sofiproteol manages a portfolio of assets which mainly comprises bonds and certificates of deposits (dépôts à terme, referred to as ‘DATs’), using some leverage effect, and which accounts for the remaining 50%. Due to the nature of Sofiproteol’s activities, our analysis is based on our ‘investment holding methodology’.
In 2020, Sofiproteol continued to invest and grow its assets while reporting significantly positive net banking income on the back of an exceptional gain on one divestment in early 2020. Part of the earnings from the divestment were reinvested in the same company. Sofiproteol has reaffirmed its long-term philosophy and remains committed to its buy-and-hold strategy with respect to its investments in the agribusiness industry. Meanwhile, the company has remained active in its bond portfolio management and has improved the credit quality of its bond portfolio.
Our ratings are underpinned by a prudent investment policy characterized by very good credit metrics. The adjusted loan-to-value ratio was very good at end-2020 as expected; it is expected to rise over the 2021-23 period, on the back of significant investments combined with an increase in financial debt, but the level is expected to remain very good nonetheless. The interest coverage ratio (FFO/(interest + mandatory dividend to be paid)) was exceptional in 2020 due to the significant gain, but is moderate on average on a lifecycle of investments.
With respect to credit metrics, we have also factored in good diversification by value: the main equity investment accounted for 14% of total adjusted investments in equity at end-2020. In addition, the certificates of deposits and portfolio of bonds are well diversified. We have also considered the average credit quality of assets; the majority of bonds held by Sofiproteol are investment grade and Sofiproteol has become even more prudent in its bond investments in the context of the pandemic. The average credit quality of assets is, however, partly lowered by equity investments, which comprise companies with credit quality below investment grade on average, albeit some companies among the top 5 in value continue to report solid credit metrics. Our ratings are also constrained by equity investments being mainly focused in France, and in the agribusiness sector. They are also partly limited by the liquidity of the equity investments, given the unlisted nature of most of the investments as well as Sofiproteol’s strategy of long-term investment. However, the low level of financial debt, the good liquidity of bonds and DATs, and a prudent financial policy enable Sofiproteol to maintain a good corporate liquidity profile, which contributes positively to our ratings.
In order to benefit from the favourable conditions (ie low interest rates) in financial markets at present, the company is contemplating the implementation of a NEU MTN program for up to €75m in addition to its existing NEU CP program for up to €300m. According to our recovery and instrument rating methodology, the NEU MTN instrument being unsecured and unsubordinated, the rating is similar to the long-term corporate rating, which results in a NEU MTN instrument rating of A-.
As of end-2020, Sofiproteol’s gross debt mainly comprised various credit lines totalling €63m, €121m of REPOs, and €198m of NEU CP. The company has confirmed to us that credit lines are uncommitted, and could be called within 60 days.
We have adjusted this reported debt for €10m of cash-out expected on equity investments.
According to our rating methodology, and our interpretation of Sofiproteol’s business, cash and cash equivalents amounted to €389m as at end-2020 and mainly comprised DATs. We have also factored in €121m of bonds to match the amount of repo debt, resulting in a net cash position of €116m as at end-2020.
Sofiproteol’s liquidity profile is still good thanks to a solid cash position as at end-2020. Based on our methodology and our projections, expected significant investments in the next three years and almost neutral free cashflow will probably reduce liquidity by 2022, but the level would remain good nonetheless thanks to cash-in from planned divestments as well as share capital increases planned for 2022 and 2023. Depending on liquidity needs, Sofiproteol, which has a prudent financial policy, may also adapt its investment strategy, which reinforces the good liquidity profile.
Our Stable outlook reflects our view that despite significant investments expected in the forthcoming year, combined with a slight increase in financial debt, credit metrics will remain broadly unchanged.
List of ratings:
- LT corporate rating: A-
- NEU MTN rating: A-
- ST rating: SR1
An upgrade of our ratings is improbable at this stage. It would require better diversification, especially with respect to industry investments and geography, and/or an improvement in the overall quality of the company’s assets, especially its equity investments, as well as a significant increase in the interest coverage ratio.
Conversely, we may downgrade our long-term ratings in the event of a deterioration of credit metrics, especially the interest coverage and LTV ratios, and/or a more aggressive financial policy. However, Sofiproteol is rather well positioned in the SR1 category, making a downgrade of our short-term rating to SR2 improbable at present.
SPRR/2021/00659 & 00660/02/07/2021
Long-term rating report on envisaged NEU MTN program and short-term rating report on existing NEU CP program
Rating initiation: 25June 2019 at SR1 for the short-term rating and 02 July 2021 for the long-term corporate rating at A- and NEU MTN instrument rating at A-
Latest rating action: Reaffirmed our short-term rating at SR1 on June 25, 2021
Rating nature: Solicited, short-term public rating on NEU CP instrument, long-term public corporate rating and NEU MTN instrument public rating.
With rated entity or related third-party participation: Yes, the rating report was issued after having been reviewed by the issuer and following an appeal by the company after the first rating committee.
With access to internal documents: Yes
With access to management: Yes
Name of the rating committee chair: Johann Scavone, Senior Rating Analyst
Material sources used to support the rating decision:
- Annual financial statements 2015, 2016, 2017, 2018, 2019, 2020 and related analytical financial statements
- Consolidated financial statements 2015, 2016, 2017, 2019, 2020
- Adjusted net assets statements 2015, 2016, 2017, 2018, 2019, 2020
- Sofiproteol company presentation
- Details of financial debt at end-2020
- Strategic plan Sofiproteol 2019-2023
- Call with management
Limitation of the Rating action:
- Qivalio believes that the quality and quantity of information available on the rated entity is sufficient to provide a rating
- Qivalio has no obligation to audit the data provided
Our methodology for short-term ratings is available at: https://www.spreadratings.com/wp-content/uploads/2019/12/SrShortTermCorporateRatingMethodology.pdf
Our methodology for investment holdings is available at: https://www.spreadratings.com/wp-content/uploads/2019/12/SrInvestmentHoldingsCorporateRatingMethodology.pdf
Our methodology for instrument ratings is available at: https://www.spreadratings.com/wp-content/uploads/2020/10/QIVALIO-Recovery-and-instrument-rating-methodology-External_28Oct20.pdf
20 boulevard Eugène Deruelle