Fitch rates Turkey's Ford Otosan Local Currency BBB-

Published April 25th, 2004 - 02:00 GMT

Fitch Ratings has assigned Turkey-based Ford Otosan (FO) a Senior Unsecured local currency BBB-rating with Stable Outlook.  


The rating reflects FO's position as the commercial vehicle production hub of Ford Europe (FE) in Europe, its strong brand name and FO's access to FE's marketing and distribution network. It also takes into account the company's leading domestic market position in light commercial vehicle and in medium commercial vehicle segment, and the domestic market's favorable fundamentals.  


The rating also factors in FO's blend of local expertise with international know-how. The group's diversified export activities also act as a hedge against the volatility of  

the domestic economy.  


In addition, the rating considers FO's strengthening operations and their future growth prospects, its low-cost manufacturing base, economies of scale in material procurement, brand new production facility, rapid de-leveraging and reduced expenditure need, following the completion of a $930 million investment program over four years.  


On the other hand, the rating reflects volatile domestic demand, Turkey's low sovereign rating, the Negative Outlook on one of the major shareholders'- Ford Motor Company's (FMC) - rating, and cyclical nature of auto demand. It also takes into account the increasing competition from rivals such as Renault, Volkswagen, PSA, Fiat and Opel, the pricing pressures in international markets as well as weak outlook for the growth of European commercial vehicle market.  


Fitch has factored in a certain degree of implicit support from FE in its rating, as evidenced by FE's decision to shift production from Genk to Kocaeli and the guarantees given together with Koç Holding (KH), another major shareholder of FO, during the downturn. FO's position as the commercial vehicle production hub in the region improved its integration within FE and reinforced its strategic importance within FE.  


FE's performance in selling and marketing FO's products, its new designs and product development are key to FO's future operations. Given the close links between the two, any fundamental change in FO's positioning within FE's strategies or a slippage in FMC's credit rating by more than one notch would trigger a rating review of FO.  


Founded in 1959, FO is one of the largest automotive manufacturers in Turkey with 200,000 units per annum production capacity. It is active in the production of Ford commercial vehicles, heavy truck and imports and sales of passenger cars. It exports more than 30 countries by using FE's marketing and distribution network; exports formed 43 percent of its revenues in 2003. FMC and KH each hold 41.04 percent of the shares and the remainder is free-floated on the Istanbul Stock Exchange. 


FO's revenues grew in 2003 by 121 percent to €1.687 million and EBITDA margins increased to 16 percent from 3.6 percent in 2002. The growth in operations is expected to continue barring an external shock or domestic market instability. — ( 



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