International rating agency Fitch Ratings has assigned ratings to Turkiye Petrol Refinerileri A.S. (TUPRAS), the leading oil refining company of Turkey as follows: International Foreign Currency 'B-' (B Minus), International Local Currency 'BB+', and National Rating 'AA+(tur)'. The outlook for all three ratings is negative.
The foreign currency rating is constrained by the sovereign rating of Turkey and as such carries the same outlook. The local currency rating is assigned on a stand-alone corporate basis, but the rating has been assigned a negative outlook as a result of linkage the company's business to the macroeconomic development in Turkey, as currently expressed by the negative outlook on its rating.
The National rating is primarily based on the local currency rating and reflects TUPRAS' relative position within the country and is comparable only with national ratings of other Turkish companies as assigned by Fitch.
The stand-alone (local currency) rating reflects the company's strong financial profile with net cash position (YE02), substantial but manageable capex that will lead to a modest increase in gross debt, and solid cash generation based on regionally superior refining margins. The company is also improving its operational performance, and its prepared privatization and new petroleum market legislation is expected to enhance its profile.
Set against these positive factors are the fact that TUPRAS has lower EBITDA margins than most refining and marketing companies partly because of its lack of retail operations that would add more stability to its cash flows, and the relatively unstable macroeconomic environment in which it operates. The company is restrained by certain business flexibility limitations imposed by its statute as a government controlled entity.
Most of the refined crude is imported (on relatively favorable terms). The amount of crude produced domestically is low and decreasing. In FY02 almost 12 percent of sales derived from exports. Its customers are typically retail operators and distributors.
The domestic market selling prices are based on Automatic Pricing Mechanism (APM) that directly translates Mediterranean refined products indexes and USD FX fluctuations into Turkish reference prices and theoretically allows an extra three percent price premium.
The domestic reference price is automatically re-set whenever the import parity (seven day rolling average) moves outside +/- 3 percent range. Fitch deems APM to be relatively pro-liberal and positive for the company compared to the price setting regime that existed until 1998.
The APM is expected to remain valid until at least end of 2004, followed by a fully liberal (market driven) price setting. TUPRAS performed well and without a deterioration in its financial profile during the recent macroeconomic crisis in 2001 (during which Turkey suffered massive devaluation, inflation, Gross Domestic Product (GDP) decline).
The company has taken on debt purely to co-finance its capex programe. This has mostly been done on roughly 40-60 organic cash flows-debt (purely non-Turkish Lira) basis, resulting in modest debt levels (TRL383 trillion at YE02) with a balanced maturity profile.
Like other companies operating in hyper-inflationary economies, TUPRAS sustains a relatively high cash reserve (mostly held in domestic currencies in domestic banks), resulting in negative or slightly positive net debt. There are no committed credit lines.
Average gross (net) debt to EBITDA in the past four years was 0.8x (-0.3x). Average debt financed portion of capex is set to increase slightly that will lead to debt peaking in 2005, however strong coverage ratios are expected to prevail. Fitch deems the company's current aggressive dividend policy to be sustainable given the currently approved capex program.
TUPRAS, currently 66 percent state-owned, the largest industrial corporate in Turkey, owns and operates four (of which three are complex) of the country's five oil refineries, with combined annual refining capacity of 27.6 million tons (86 percent of the national total) and one petrochemical complex.
TUPRAS generated TRL309 trillion ($189 million) EBITDA on revenues of TRL8,657 trillion ($5.3 billion) in FY02. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
