Paris, November 05, 2021 -- Moody's Investors Service (Moody's) has today affirmed the
A1 long-term ratings and P-1 short-term ratings of
Swiss pharmaceutical company Novartis AG (Novartis) and its guaranteed
subsidiaries, following the announcement by Novartis that it would
sell to Roche Holding AG (Roche) the 53.3 million Roche shares
that it held for a consideration of USD20.7 billion (CHF19 billion).
The outlook on all ratings is stable.
A full list of affected ratings is provided at the end of the press release.
RATINGS RATIONALE
The affirmation of the A1 rating reflects Moody's expectation that,
despite the cash injection that will initially strengthen the company's
financial profile, the proceeds from the transaction will be mostly
directed to investments, including acquisitions, or to shareholder
returns, in line with Novartis' capital allocation strategy.
Therefore, Moody's does not expect that over time the transaction
will alter Novartis' financial profile materially. The affirmation
assumes no change to Novartis' financial strategy and policies.
Moody's regards financial strategy and risk management as a governance
consideration under its ESG framework.
On 4 November 2021, Novartis announced that it would sell the 53.3
million Roche shares that it has held since May 2001 to Roche for a price
of USD388.99 (CHF356.93) per share, representing a
total cash inflow for Novartis of USD20.7 billion (CHF19 billion).
With the sale of its stake in Roche, Novartis will no longer receive
dividend payments which amounted to CHF480 million in 2020.
Novartis' A1 rating continues to reflect its large scale and leading
position in pharmaceuticals and generics; limited product concentration
and a degree of diversification provided by its presence in generics;
a solid pipeline, with several blockbuster candidates across different
therapeutic areas; and strong cash flow generation.
The A1 rating also takes into account Novartis' increasing exposure to
innovative pharma, which carries higher overall risk; some
exposure to patent expiries, notably Gilenya (multiple sclerosis)
and Tasigna (oncology); and a degree of event risk because Novartis
will continue to seek acquisitions to strengthen its pharmaceutical franchise.
RATIONALE FOR THE OUTLOOK
The stable outlook reflects Moody's expectation that over time the
transaction proceeds will be allocated to investments or shareholder returns,
leaving Novartis' financial profile broadly unchanged.
LIQUIDITY
Novartis' liquidity is excellent, supported by cash and cash equivalents
amounting to USD7.2 billion as of 30 September 2021, access
to a USD6.0 billion multiyear credit facility and solid FCF generation
of about USD4 billion annually. Novartis has two US commercial
paper (CP) programmes and a Japanese CP programme. The US CP programmes
are backed by the company's USD6 billion five-year committed credit
facility maturing in September 2024.
ESG CONSIDERATIONS
Novartis faces high industry-wide social risks related to policy
risk, litigation exposure, and high manufacturing compliance
standards. The company's very good product and geographic diversity,
and its presence in generics, which is less exposed to litigation
and pricing risks, helps mitigate these risks. Novartis has
moderate exposure to environmental considerations, and it has strong
corporate governance practices, a successful track record and generally
conservative financial policies. The transaction will not materially
affect our assessment of Novartis' corporate governance.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade of the rating would require Novartis to maintain a solid business
profile, and good product diversification, and return towards
a more conservative financial policy. Quantitatively, an
upgrade to Aa3 would require Moody's-adjusted gross debt/EBITDA
below 2.0x and Moody's-adjusted cash flow from operations/debt
in the high-40s in percentage terms, on a sustained basis.
The rating could be downgraded if Novartis' Moody's-adjusted gross
debt/EBITDA stays above 2.5x for a prolonged period or its Moody's-adjusted
cash flow from operations/debt fails to improve towards 40% over
time. A deviation from these metrics could be somewhat accommodated
if Novartis maintains cash/debt at least around 20%.
LIST OF AFFECTED RATINGS
Affirmations:
..Issuer: Novartis AG
....LT Issuer Rating, Affirmed A1
....ST Issuer Rating, Affirmed P-1
....Senior Unsecured Regular Bond/Debenture,
Affirmed A1
..Issuer: Novartis Capital Corporation
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed A1
..Issuer: Novartis Finance Corporation
....BACKED Commercial Paper, Affirmed
P-1
..Issuer: Novartis Finance S.A.
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed A1
..Issuer: Novartis Securities Investment Ltd
....BACKED Commercial Paper, Affirmed
P-1
Outlook Actions:
..Issuer: Novartis AG
....Outlook, Remains Stable
..Issuer: Novartis Capital Corporation
....Outlook, Remains Stable
..Issuer: Novartis Finance S.A.
....Outlook, Remains Stable
..Issuer: Novartis Securities Investment Ltd
....Outlook, Remains Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Pharmaceutical Industry
published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1062755.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
COMPANY PROFILE
Headquartered in Basel, Switzerland, Novartis AG is one of
the world's largest pharmaceutical companies. In 2020, Novartis
generated USD49 billion of revenue through two business lines: the
Innovative Medicines division (about 80% of revenue) and the Sandoz
generics division (about 20%).
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Marie Fischer-Sabatie
Senior Vice President
Corporate Finance Group
Moody's France SAS
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Jeanine Arnold
Associate Managing Director
Corporate Finance Group
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Client Service: 44 20 7772 5454
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