EthiFinance Ratings (formerly Qivalio) has reaffirmed its long-term corporate rating for Sofiproteol SA at A-, and its instrument rating for the NEU MTN program for up to €75m at A- as well. Meanwhile EthiFinance Ratings has reaffirmed its short-term rating at SR1 on Sofiproteol’s NEU CP program for up to €300m. These ratings confirmations come after the company proved resilient during the pandemic, reporting significant gains on some investments, thereby strengthening its track record and at the same time improving the interest coverage ratio.
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. Sofiproteol 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. This accounts for the remaining 50% of the company’s assets. Due to the nature of Sofiproteol’s activities, our analysis is based on our ‘investment holding methodology’.
Our ratings remain underpinned by a prudent investment policy, characterized by very good credit metrics and a good track record, again on reinforced by some significant gains made over the past few years despite the consequences of the pandemic. The adjusted loan-to-value ratio was negative at end-2021, and is expected to remain stable over the 2022-23 period. The interest coverage ratio - FFO/ (interest + mandatory dividend to be paid) - has improved, fostered by some significant gains made over recent years.
With respect to the portfolio characteristics, we have also factored in good diversification by value: the main equity investment accounted for 15% of total adjusted investments in equity at end-2021. 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, despite the impact 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 on France, and in the agribusiness sector, whereas the bond portfolio is well diversified geographically. 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.
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-, unchanged compared to last year.
As of end-2021, Sofiproteol’s gross debt mainly comprised various credit lines totalling €47m, €129m of REPOs, €279m of NEU CP, and €15m of NEU MTN. 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 €8m 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 €436m as at end-2021 and mainly comprised DATs. We have also factored in €129m of bonds to match the amount of repo debt, resulting in a net cash position of €84m as at end-2021.
Sofiproteol’s liquidity profile is still good thanks to a solid cash position as at end-2021. Based on our methodology and our projections, some significant investments in the next three years and almost neutral funds from operations will probably reduce liquidity by 2024, but the level would remain good nonetheless, helped by share capital increases planned for 2022, 2023 and 2024. Depending on liquidity needs, Sofiproteol, which has a prudent financial policy, may also adapt its investment strategy, which reinforces the good liquidity profile.
Credit metrics expected evolution (CMEE)
Our Stable CMEE reflects our view that despite significant investments expected in the forthcoming year, credit metrics are expected to remain broadly unchanged.
List of ratings:
- LT corporate rating: A-
- NEU MTN rating: A-
- ST rating/NEU CP rating: SR1
An upgrade of our LT ratings would require better overall 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.
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. A downgrade of our short-term rating is improbable at present and would require significant unforeseen change in credit metrics or liquidity.
SPRR/2021/753 & 752 & 754/28/06/2022
Long-term & short-term ratings review report on existing NEU MTN & NEU CP programs
Rating initiation: 25 June 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-.
Last rating action: Reaffirmed our short-term rating at SR1 and initiated our long-term rating at A- on 02 July 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.
With access to internal documents: Yes
With access to management: Yes
Ancillary services provided to the entity: No
Name of the rating committee chair: Johann Scavone, Senior Rating Analyst
Material sources used to support the rating decision:
- Annual financial statements 2018, 2019, 2020, 2021 and related analytical financial statements
- Consolidated financial statements 2018, 2019, 2020, 2021
- Adjusted net assets statements 2018, 2019, 2020, 2021
- Sofiproteol company presentation
- FY22 budget
- Strategic plan Sofiproteol 2019-2023
- Call with management
Limitation of the Rating action:
- EthiFinance Ratings believes that the quality and quantity of information available on the rated entity is sufficient to provide a rating
- EthiFinance Ratings has no obligation to audit the data provided
Our methodology for short-term ratings is available at
Our methodology for investment holdings is available at
Our methodology for instrument ratings is available at
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