Offentliga Hus i Norden AB (publ) 'BB-' long-term issuer rating on Watch positive
Prenumeration
Nordic Credit Rating (NCR) said today that it had placed its 'BB-' long-term issuer rating on Swedish community-service property manager Offentliga Hus i Norden AB (publ) (Offentliga Hus) on Watch positive ahead of a planned initial public offering (IPO) in October 2020. At the same time, we affirmed our 'BB-' long-term and 'N-2' short-term issuer ratings on the company. By placing the long-term rating on Watch positive we are signalling a high likelihood of a one-notch upgrade in the next three months pending successful completion of the IPO.
Rationale
Offentliga Hus is planning to list its common shares on the Nasdaq First North Premier Growth Market. In preparation, the company has streamlined its portfolio by selling its shares in student housing company Studentbostäder i Sverige AB and disposing of 88 small properties (transactions will close on 30 Sep. 2020). In addition, the company has announced new financial targets, with the aim of improving transparency in terms of future growth and finances. In the past year, Offentliga Hus has implemented a new organisational structure, increasing the number of employees to 15 from two previously. As of 31 Aug. 2020, the company's property portfolio consisted of 141 properties totalling 518,000 sqm with a market value of SEK 8.6bn (excluding properties scheduled for divestment by 30 Sep. 2020).
Our 'BB-' long-term issuer rating reflects Offentliga Hus' strong operating environment, long-term contracts with mostly highly creditworthy tenants, geographically diverse portfolio, and increased focus on in-house operations. These strengths are offset by a highly leveraged balance sheet, low EBITDA margins, and high growth. The rating is also constrained by a notch of adjustment to reflect uncertainty about the financing of Offentliga Hus' ambitious growth plans. Following a successful IPO, we would expect to remove this adjustment.
In September 2020, Offentliga Hus obtained an equity contribution of SEK 300m from its parent company, ensuring an equity ratio above 30% in line with its bond covenants.
Watch positive
The Watch placement reflects our expectation that a successful IPO will increase transparency and governance. We further expect it to improve both credit metrics and liquidity, as well as diversify ownership and improve access to equity funding while reducing reliance on the two main shareholders. We plan to resolve the Watch placement within three months depending on the outcome of the IPO. We could remove the rating from Watch if the IPO is delayed or cancelled.
Potential positive rating drivers
- Successful completion of IPO leading to an injection of new capital and improved solidity.
- Decreased leverage, with adjusted LTV below 60% and EBITDA/net interest above 2.2x over a protracted period.
- Increased focus on tier 1 quality properties with desirable LTV levels.
Potential negative rating drivers
- Unsuccessful IPO outcome, compromising liquidity.
For more information, click here.
If you have any questions, please contact:
Marcus Gustavsson, credit rating analyst, +46700442775, marcus.gustavsson@nordiccreditrating.com
Mille O. Fjeldstad, credit rating analyst, +4799038916, mille.fjeldstad@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Methodology published on 14 Aug. 2018 and NCR's Rating Principles published on 16 Sep. 2019. For the full regulatory disclaimer please see the rating report.