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Moody’s cuts 8 Turkish corporate ratings to B2 after sovereign downgrade, outlook negative

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Moody’s Investors Service has downgraded the ratings on eight non-financial corporates in Turkey and maintained the negative rating outlooks, following an avalanche of rating cuts that kicked off with the downgrade of Turkey’s government bond ratings to B2 from B1 last Friday.

The rating agency said that the downgrades “follow the weakening of the Turkish government’s credit profile”.

The affected corporates are:

  • Anadolu Efes Biracilik ve Malt Sanayii A.S. (Efes)
  • Coca-Cola Icecek A.S. (CCI)
  • Eregli Demir ve Celik Fabrikalari T.A.S. (Erdemir)
  • Koc Holding A.S. (Koc Holding)
  • Ordu Yardimlasma Kurumu (OYAK)
  • Turkcell Iletisim Hizmetleri A.S. (Turkcell)
  • Turkiye Petrol Rafinerileri A.S. (Tupras)
  • Turkiye Sise ve Cam Fabrikalari A.S. (Sisecam)

Moody’s said that the ratings and outlook on Petkim Petrokimya Holding A.S. (B2 negative), Ronesans Gayrimenkul Yatirim A.S. (B2 negative) and Turk Hava Yollari Anonim Ortakligi (B3 negative) are unchanged because the ratings are already at or below the country’s foreign currency ceiling.

The rating agency said that most rated corporates “continue to have prudent financial policies, adequate liquidity, moderate leverage and strong business profiles which in some cases is supported by geographic diversification outside of Turkey or export revenues.”

However, their ratings are constrained by the foreign currency bond ceiling because these companies are materially exposed to Turkey’s political, legal, fiscal and regulatory environment.

“The risk of government-imposed measures to preserve the country’s foreign exchange reserves is increasingly likely to crystallise. This could prevent corporates from accessing their foreign currency cash deposits or servicing their foreign currency debt obligations,” Moody’s said.

For OYAK, the army-controlled pension fund and one of the biggest industrial groups in the country, the negative outlook also reflects a deterioration in liquidity.

Moody’s said that this stems from an increase in short-term debt and lower dividend income due to temporary restrictions imposed by the Turkish government that currently limits dividends to 25% of net profits.

Dividends from its investee companies form OYAK’s main source of income. However, the rating assumes that OYAK will restore to a more adequate liquidity by leveraging on its investment portfolio.

The ratings are likely to be downgraded in case of a further downgrade of Turkey’s sovereign rating or a lowering of the foreign currency bond ceiling, Moody’s said. In addition, downward rating pressure could arise if there are signs of a deterioration in liquidity or if government-imposed measures were to have an adverse impact on corporate credit quality.

Erdemir’s rating could come under negative rating pressure if leverage increased materially from current levels on a sustained basis or there is a shift towards higher risk financial policies. Specifically, if distribution to shareholders (including OYAK) lead to inadequate liquidity.

OYAK’s rating could be downgraded if the company fails to establish an adequate liquidity profile over the coming months by way of refinancing debt, upstreaming dividends or monetise a portion of its investment holdings.

Tupras’ ratings could experience downward ratings pressure if plant utilisation and net refining margins remain low, leading to depressed operating cash flow in 2021. Specifically, the ratings could be downgraded if Moody’s adjusted debt/ EBITDA (including inventory gains/losses) remains above 5.5x or adjusted EBITDA/interest remains below 1.25x, on a sustained basis.