Good morning, and welcome to the Balder update call. My name is Charlie, and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can do so by pressing star followed by one on your telephone keypad. Following the presentation, our Q&A session will be open until 8:45 A.M., at which point we will close the call. I'll now hand over to your host, Ewa Wassberg, Head of Finance, to begin. Ewa, please go ahead.
Hello, welcome to our call about the press release that was yesterday regarding the revision from S&P and the rating outlook from stable to negative by confirming our triple B rating. I think I will start with some key figures from Q3. As you're well aware, our equity assets is well in line with our long-term goal of 40% with 40.4% as of Q3. Our net debt to EBITDA is at 13.5, a key ratio which we expect to improve further the coming years due to lower investments in combination with cash flow from completed projects. Our ICR is 5.2, compared to our long-term target of 2.0.
That said, we believe all our credit metrics are performing very well, and we are confidently managed the refinancing with a good headroom in our metrics. Yes, that's from me. Over to you, Erik.
Yes, also it's worth to mention, this is looking at S&P, what their conclusions are. They say that even if property values falls according to their forecast, we will still have a margin on debt, the EBITDA and ICR and so on. They are most worried about liquidity in this case and the refinancing. The figures from Q3 is actually strong as well with some headrooms to the requirements. They are maybe a bit cautious about the future. From our side, of course, everybody can be a bit worried these times, but we feel that all the discussions with banks and so on continues very good. I think we're a bit more optimistic.
I think the important thing is that all the metrics, even with the S&P's a bit negative forecast, is well in line with the rating. It is liquidity, and we are refinancing things and even bought bonds in advance. We just have to keep up the good work there. This is outlook for I think 1-2 years ahead. Yeah, we just have to continue to do the best we can, and we think refinancing right now at least is going very well.
Yes.
But we-
The discussions with the S&P, they are certain that we will not break any thresholds. Outlook is just a way of highlighting increased risk and certain uncertainty regarding the refinancing environment. I think that's important to highlight.
I think they see a bigger risk in bank refinancing than maybe we do or people in general in the Nordic market. But I mean, everyone can have different opinions about everything, of course. But we thought it was anyway good to have this call to see if there are any questions or specifics or something we can discuss. Appreciate that a lot of people taking the time to dial in, and maybe we can see if there are any questions.
Of course. If you'd like to ask a question via the telephone lines, you can do so by pressing star followed by 1 on your telephone keypad now. If you choose to withdraw your question, please press star followed by 2. When preparing to ask a question, please ensure your phone is unmuted locally. As a reminder, that's star followed by 1 on your telephone keypad now. Our first question comes from Simen Mortensen of DNB. Simen, your line is open. Please go ahead.
Hi, this is Simen from DNB. I have a few questions. First of all, with this negative outlook, will you be considering steps to improve the balance sheet, for instance, asset sales and similar transactions to improve the balance sheet?
If you look at this S&P statement, they actually think the balance sheet is okay, Simen. They are looking at refinancing and liquidity. Of course, we can sell assets anyway. The metrics even going forward are okay if you look at debt to EBITDA, ICR and if you look at debt to net class equity. I would say if refinancing continues to go well as it does, then from an S&P standpoint, we don't need to do anything. Of course we can, if we think it's good in the total picture to sell something, that can also be done.
Second question is, will be already in March, in Q2 next year, you have some hybrid instruments maturing. The risk seems they also have given the liquidity situation, how are you planned to do the call on these, and, how do you address that if they lose or not, or keep the 50-50 split used by rating agencies in the handling of these hybrid instruments? How do you address these, and what are your thoughts and plans for refinancing these hybrid instruments?
As you know, S&P hybrids is a bit, how should I put it? Troubled to talk about, because if we communicate exactly what we will do, then S&P can take that into account the same day. S&P hybrids is very difficult for all of the companies having them to say something in advance. I think as you all know, we have to communicate at one time to everyone, and not have information selectively about that. I think it's an unlucky situation, but we actually can't do much about it if S&P rules.
Okay. My last question will go to including securing financing. Naturally, bank debt seems to be a viable option. What is the current secured or pledged debt ratio, and how much refinancing can you still do and pledge as secured debt? How much will that potentially cover? How much time will that give you on the maturities coming up based on you having quite a lot of maturities of bank debt already coming up and refinancing next year?
You can see if you look at the Q3, there's a very big headroom from where we are then and till it gets sort of too high. That level is still below. Maybe Ewa has a figure, but what we do, we know is that we are taking on.
Yeah. Sorry. It's about 30% secured as of Q3. I guess your question is if we replace 2023 and 2024 with secured bank financing, it will rise from 30% to approximately 40%.
Exactly.
Well, in line with.
I think he meant how big part of the security.
How much headroom you have left?
Yes. It's a big headroom. I think we are.
Yeah, it's a very big headroom.
I think our idea is basically that we have credit lines and bank facilities, and if we use them, we can manage bonds for 2023, 2024. We don't have to do any acquisitions if we don't want to. Basically we can save for 2025 maturities, and then maybe 2026 we will have to look at something in that scenario.
Thank you. There were my three questions for now.
Thank you. Our next question comes from Erik Granström of Carnegie. Erik, your line is open. Please proceed.
Thank you. Good morning. I have two questions. The first one, regarding your liquidity position, how have you handled it since the end of Q3 in terms of buying back the bonds? You mentioned that in the press release. Could you give us some more on what you have done during Q4 and what you feel in terms of your liquidity position at this point?
We tried to buy back all the 2023 bonds, SEK- denominated. We offered to buy 100%. We got, I think, maybe 65 or something like that, Ewa?
Yeah.
It was still pretty good to get them in advance. Since we have the liquidity, we thought it was good to give the investors an alternative at least. Then this is an ongoing thing to actually turn in some cases commitments to actually to loans. Later on the remaining 2023 and after that 2024 bonds as well. This is an ongoing process, it's going good, I would say. For all the banks, I think this is a good way to do it right now and as we feel very supported, then it makes sense for everybody actually.
Thank you. My second question is when you do have discussions with the banking system regarding secured debt, how do you interpret their pricing at this point, if you were to compare it to, say, in spring of 2022? Has this changed materially? If so, what kind of on average would you say margins are in the banking system today?
I would say it's a bit more expensive, but it's not that dramatic actually. It's a bit more expensive, but margins, you have quite a range actually, depending on if it's recio commercial and if it's how long credit duration you have. Say you have a span everywhere from maybe 1% margin, then maybe 1.25% up to perhaps 2% or 1.75%, somewhere around there. It's actually the different case by case. That area, I would say.
Okay. Thank you. Those were my questions.
Okay.
Thank you. Our next question comes from Clark McPherson of Clearance Capital. Clark, your line is open. Please go ahead.
Yeah. Good morning. Thanks for hosting this call. Just a quick one on the you had this unsolicited rating from Moody's. Is there anything you can do about that in terms of possibly getting that removed?
I don't know. Actually, it's a very good question, and we get a lot of sort of questions from, investors that really want the same thing. I don't really know how to do it. I mean, we feel that the investor community wants the same thing. Of course, we have no actual way of stopping someone rating us if they want to. I mean, now everyone thinks this is a bit strange, and many investors are actually quite upset with it, but I don't know if we have any tools to change it.
Right. Just coming back to the hybrids. From your previous comments, should we think that all options are on the table. Well, it's possible that you could consider extending beyond the call dates. I mean, that would obviously help address one of the concerns highlighted in the S&P report, which is the liquidity.
Well, I mean, obviously, we can consider anything all the time, basically. In this case, I think it's difficult for us to communicate without doing it at the same time to everyone.
I mean, if -
No matter what alternative is offered, I think still we should communicate -
To-
- the same information at the same time, basically.
No, I understand. I mean, did you actually have a discussion with S&P before the release of this report? If so, was the refinancing of the hybrids part of that discussion? I mean, without going into specifics.
No.
the option.
No. Hybrids specifically was not the discussion, actually. It's not that big part of the total. If you look at it,
Mm-hmm.
The possible alternatives, it will not make a big difference. So the discussion was more that our liquidity position is very good. I think it's never been better, actually. But it's more that they think what might happen in one or two years, and of course, it's very hard for me to prove what will happen in two years. I think it's quite impossible. And I think the difference between us is that they feel that bank refinancing could be more complicated than we think. And I mean, time will tell. But looking back, I think in general, Nordic banks are relationship-driven, and I don't think I heard actually a customer that sort of loses their financing if everything else is okay. But I mean, it's not right or wrong. This is just different way of looking at it. So that was the discussion.
Yeah, all the other metrics, even with their forecast of falling prices and so on, is okay if you look one, two years ahead anyway, since we have good earnings and we don't need to invest, but we want to. That's the difference, is I think what if you can't refinance bank debt?
Okay.
We keep on working with that and inform them. Yeah.
Okay. That's clear. Thank you very much for the answers and again for hosting the call.
Thank you.
Our next question comes from Ludvig Kapanen of Nordea. Ludvig, your line is open. Please go ahead.
Thank you very much. Good morning. Two questions from my side. I wonder because in the press release yesterday, you said that you will take the steps necessary essentially to defend your triple B rating as it stands, and that you are confident that you will be able to do that. Could you please give us some examples of what such steps could be?
It's basically to continue this refinancing to keep up the metrics that they want to have. We already have them. We have to continue that work. You know, if we just do nothing, then time will sort of be against us because everything matures.
Absolutely. Your options there, what types of financing are you targeting primarily in this type of market?
What we are doing now is that we are taking up more bank financing. That works good, we would say. If we do that, according to plans, we handle all the bonds, and we don't think that refinancing bank debt is a problem. There you can have different views. I mean, everybody can think differently about that.
Absolutely. I understand. With regard to the credit lines that you have available as of now, can you use them for whatever purpose you like, or are there any restrictions for what you can use them for?
Normally we can use them, you know, either way, but we have no use for it unless it is to basically go from bond and using loans instead. Because the running business gives excess cash all the time. When we are taking out a loan, it is just to refinance bond market. It also like this, if we buy back bonds, then we don't need that much liquidity since S&P looks one year ahead, and then we should cover it with a margin. If we pay back, let's say SEK 5 billion, then we actually save SEK 6 billion in the S&P, how they count. I guess maybe you know this already, but that is the system that is how they measure it.
Okay. Understood. Thanks very much.
Thank you.
Thank you. As a reminder, if you wish to submit a question, please press star followed by one on your telephone keypad now. Our next question comes from Louis Landeman of Danske Bank. Louis, your line is open. Please go ahead.
Yeah, good morning. Yes, I'm also trying to understand the reason for this rating action. As you say, it seems to be more on liquidity concerns than leverage, which in a way it's understandable, but perhaps slightly surprising as well, given that I have certain criteria that you have to fulfill and you're currently fulfilling those. Of course, if you extend from 12- 24 months, I can see that there is of course a risk. So the question would be, and it comes back to this bank financing. It's part of the question of refinancing existing bank financing, as I understand it. The second then would be that is it your impression that you need to sort of achieve additional bank financing to maintain a stable credit profile?
If so, do you have like a target for how much additional bank financing you would need? Also if you could comment on the general appetite among Nordic core and/or other banks for additional,
No, you're absolutely right. This is just about financing, for all the other metrics are well in line actually. Even if they look forward, I think it still will be. They are just concerned about liquidity and the situation right now is very good. They also say that we don't know what happened in one or two years, and of course nobody knows. It's important to have that in mind. What we do now is that we take up more bank financing and reduce bond financing for the time being. What we think is that it will be attractive to secure all the bonds 2023, 2024.
You know that we have the possibility to sort of go from bonds to bank for those maturities. After that, we can actually pay 2025 without borrowing money because we can pay it with our earnings. We are at 2026, but we maybe have to do something or continue just to save money and pay even then. That is our more long-term strategy that we are working on now. We think we feel a very strong support from all the banks. Of course it's hard to prove that how is the situation two years from now. I think it's difficult, but I think also if we just continue with it, I think you will also see that this is working quite well.
They are in general more afraid of bank financing than we are. I think it's, it comes down to that.
Yeah.
I would say.
What I find, yeah, that's what I also find quite interesting. Yeah, very good. Thanks for the elaboration. It also seems as a follow-up, I mean, that you have in a way very large capacity to add on additional secured debt in a rating, right?
Yeah, yeah. Huge capacity. Absolutely. Absolutely.
As long as you can achieve additional bank financing, basically this should be a non-issue situation, basically.
Yes. Yeah. Absolutely. Yeah. Absolutely.
Yeah. Perfect. Thank you.
Thanks.
Thank you. Our next question comes from Markus Henriksson of ABG Sundal Collier. Markus, your line is open. Please go ahead.
Thank you very much. Good morning. Going back to the last question and maybe if we can also address it a bit in numbers. First off, when you have repurchased the bonds now for 2023, how much bonds are outstanding here for 2023 and 2024 out of outstanding debt?
Swedish, we got back 1.6 something out of 2.5. So it's like SEK 800-900 left in the SEC market. In 2024 we have SEK 4.5 billion in the SEC market. We have in Balder, EUR 500 in 2023, nothing in 2024. We have the hybrid 2023 that we will do something with, that we have to communicate another time. Our Finnish subsidiary have EUR 300, two years, 2023, 2024. But they actually have facilities to cover that, but they might do some other solution as well. So it's quite manageable. But on the other hand-
Mm.
- I think S&P like to follow it and then we actually do it. They see that we do it. Then 2025 is, I think, EUR 500. If we sort of secure 2023, 2024, then we can just save money and pay 2025 without borrowing.
Very clear. Thank you. Also compared to the secured financing that was also in the last question to address that in numbers. You're currently at 16% secured versus the total balance sheet.
Exactly.
How much could you drop in million and compare that to the bond maturities that you just mentioned?
I don't remember the fee, but the amount is so big. If we go to the maximum, I don't know, I think it covers, I don't know, couple of years more, maybe we are around to 2028 or anyway, we are far away then.
You want to keep some headroom. You don't wanna be too close either to that.
No.
Threshold, I guess.
No. I mean, if you look ahead three, four, five years, it will not be too much. On top of that we also have the rental cash flow and earnings, you know, so I think that threshold is not at risk for many years.
Very clear. Do you know what type of inflation assumption S&P have in its rental income estimates for 2023? And do you know if they include any project gains or only the top line effect from projects as they mentioned?
Only top line. No project gains. It's what
The inflation assumptions. We got a new figure yesterday.
Yeah, it is in the release. Do you know it, Ewa? You have it in your report.
I think the indexation in Sweden and Finland is about 7% for 2023. You're right, it's all their initial assumptions is in their release.
Okay. Thank you for that. Those were my questions.
Thank you. Our next question comes from Adrien Fourcade of Deutsche Bank. Adrien, your line is open. Please go ahead.
Yes. Good morning. Basically I had a couple of questions. The first one is on your financial policy. We've seen some of your peers, Cibus and Castellum recently revising slightly more conservatively their LTV and ICR metrics. I was wondering if it was something you could consider, you know, in the near future in order to please rating agencies.
Yes, very good question, and we are actually thinking about that. That is also a question for the board obviously. We are looking at it. I think we should add that will be decided when we look at it. I think we don't have any target for net debt EBITDA, and that wasn't really a big thing when interest rates were supposed to be zero forever. Now since we have interest rates, I think that is a quite interesting metric to look at as well. Of course we can look at the one we have, maybe to add even that.
Okay. Thank you very much. The second one is, I mean, we've seen that you've done some tenders on, let's say the short-dated SEK bonds as well as the hybrids during the summer. I was wondering if you could consider as well some tenders on, let's say the longer dated senior bonds, which trade at a low cash price, which could allow you to maybe improve some of the metrics as well.
Yeah, that's a very interesting idea actually. I agree with you. It's very interesting to look at that. You are 100% right.
Okay.
Thank you. As a reminder, if you wish to submit a question, please press star followed by one on your telephone keypad now. Our next question comes from Silvia Durante of NN Group. Silvia, your line is open. Please go ahead.
Hi. Thank you very much for hosting the call. I would like to get back to the hybrid again. The two rating methodologies that you have seem to incentivize different actions for the hybrid next year. I appreciate you can't really give your preferred action. In general, is it fair to assume you would rather focus on the one rating that you have, which is solicited mostly, or would you look at both?
I didn't quite follow you. Could you say it one time again?
Yeah, sure. I was talking about the hybrid and the fact that Moody's and S&P have, let's say, two different methodology when looking at this.
Yeah.
So-
Mm.
I appreciate you cannot really say much about what you're gonna do, but in general, is it fair to assume that you will focus on S&P methodology mostly, or would you look at both next year?
Okay, now I understand. Yeah, I agree with you. I think in the case of hybrids, I think Moody's approach is more rational, since they look at every hybrid sort of individually. If you have a hybrid and buy it back, then they sort of exclude that one, but doesn't affect the other ones. I think they have a better approach on hybrids, Moody's. Then I don't know if you can have a separate rating on hybrid. We have to look into that actually. Do you know if you can have a rating just for the hybrids on Moody's but not on the rest? Do you know?
No, I don't think so. Yeah, it was.
No.
Right now you have both of them, right?
No, we don't have.
I can-
Moody's, they rate. No, Moody's rates us, but not on our behalf. They do it on their own, but not on our behalf.
When you will decide what to do, you will mainly focus on the one you decided to have, so S&P methodology, that will be the main driver?
Of course.
Right now we only have S&P.
That's our solicited rating.
Mm.
Moody's is unsolicited.
Sorry, what did you? I didn't hear.
The Moody's rating is unsolicited. S&P is the rating agency we use as our solicited rating. Of course we will focus on S&P.
Okay. Okay, that's clear. Thank you very much for the clarification. I had other questions, but they were already answered. Thank you.
Okay.
Thank you. Our next question comes from Andrew Ling of BlackRock. Andrew, your line is open. Please go ahead.
Good morning. Thank you for the call. Appreciate the communication so soon after the report came out. Just noting your points on increasing, you know, secured debt. Obviously the margins and base rates are increasing and have increased relative to your current cost of capital. Where do you sort of expect your interest coverage to get to if you assume you refi everything up to 2024 with secured bank debt?
Hi, Andrew. Finally.
I know. We'll have to do a separate call later. Yeah.
Yeah. We've been trying to call each other 10 times, but-
Yeah, I know. I know
Nice to hear your voice. Yes.
Thank you.
I don't think it will have a huge impact. I think, you know, 70%-ish of the debt is maturing later. Exactly what the ICR will be also depends on, you know, rental income. There will be a big headroom under all circumstances to what we need to have. How big, I don't know exactly, but it's way over what we need to have if you look if you're thinking about the rating.
Yeah. Does S&P currently have a secured debt trigger in your downgrade triggers?
What you say? The secured debt?
Do they sometimes have a downgrade trigger that limits the amount of secured debt that you can take on? I'm just wondering if you-
Sure, I think.
If they have one in your-
It is much higher than we are now. I don't remember the exact figure, but the headroom is so big. I mean, most likely we will never reach that level.
Yeah.
If so, it's many, many years from now in that case, if we just continue to go to 100% bank debt and never have bonds anymore. I still think that actually a debt is possible without reaching that trigger.
Okay. I know you're not communicating too much on the hybrids, but I just had a technical question.
Mm-hmm.
You did the tender for 10% last year. Does that reset first of January?
No. They measure it on a 360-day, five-day rolling basis.
Okay.
You can't.
Okay.
Do it calendar year. Yeah, they even told me that, you can't do it in December then, and then in January.
Yeah.
365 days, and then you can do another 10% -
Yeah.
- again if you want to.
No, understood. Thank you very much for taking my questions.
Thank you.
Thank you. Our next question comes from Neeraj Kumar of Barclays. Neeraj, your line is open. Please proceed.
Hello. Thank you for taking my question. I'm sorry I joined a bit late, so I'm not sure if this was answered already, but I'll still ask the question. Regarding hybrid, I can see there are a couple of questions already. What I want to understand is how you're thinking about it because, like in terms of what your options are and how likely you are to go out with those options, I mean, there are restrictions from S&P on what you can say, but how you're thinking about it, like in terms of letting it extend or like, sort of refinancing it with equity raise or like what are your thoughts or like what sort of new coupons are you willing to accept in terms of if you have to refinance?
I think we have to communicate it to everyone at the same time, basically. It's we can't really say what we're going to do, you know, selectively. That is very unfortunate. I would like to be able to elaborate more on this, but that is not good if we're looking at what S&P think about it, so I'm a bit handcuffed there unfortunately.
Got it. I mean. Yeah, I get it. I mean, the question is in context of like the near-term refinancing in terms of like, whether you plan to prioritize other refinancing than the refinancing of hybrids.
I think that's the same question. If I answer that, then I actually say what I will do.
Yeah. Okay.
You should be a journalist actually.
Sorry. No, no, apologies for reiterating the question maybe. Yeah, I think that's all from my side, so no worries.
Yeah. Thank you very much. Thank you.
Thank you, Neeraj. Our next question comes from Maggie Cheng of Crédit Agricole CIB. Maggie, your line is open. Please go ahead.
Hi, and thank you for taking my questions. Could you give us some color on the valuations? Because I think the market expect around 10%-15% decline, and S&P expect 5% decline in 2023. If you think 5% is fair, does that mean that there will be more decline like 10% in 2024? Just the rough estimations. Thank you.
Yes. I understand the question, but we don't really make forecasts on valuations. We do it every quarter, and you know, we get this again from external evaluators. We never make a forecast for value later on.
Okay.
Actually, I feel that I really don't know. Hard to tell.
Okay. Understand. Yeah, also the question about secured debt to total debt that could trigger a downgrade is 50%.
50. Okay.
Yeah. Now you are at 16. In the S&P report it's 16.4%.
Yeah. That's true.
Yeah. Thank you. Thank you for answering my question.
Thank you.
Thank you.
Thank you, Maggie. This is all we have time for in terms of questions, so I'll hand back to you, Jonas Erikson, for any closing remarks.
Thank you. Thanks, Ewa and Erik for the presentation and everyone for listening and the questions. The time is up. If there are any follow-up questions, you can send them directly to Erik or Ewa, and they will answer you directly. Thanks again and, have a great day everyone.
Thank you. Bye-bye.
Thank you. Bye.
Ladies and gentlemen, this concludes today's call. You may now disconnect your lines.