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Turkcell Debt Ratings Upgraded by Agency
Published on:
Moody's Investors Service has upgraded Turkey based Turkcell's debt ratings and said that the outlook is now stable.
"Today's upgrade reflects Turkcell's improved operating performance in the first nine months of 2012," says Martin Kohlhase, a Moody's Vice President -- Senior Analyst and lead analyst on Turkcell. "The resulting strengthened liquidity profile will allow the company to face a number of potential cash calls, which Moody's assumes to include potential dividend payments for fiscal years 2010 and 2011 of $1.1 billion line with the company's general dividend policy to pay out minimum 50% of net distributable income and potential Greenfield investments or acquisitions of up to $500 million," adds Mr. Kohlhase. "We expect Turkcell's future performance, in combination with the maintenance of a minimum cash balance of $1 billion, to withstand any potential cash calls."
In the first nine months of 2012, Turkcell improved its financial performance with debt/EBITDA decreasing to 1.4x from 1.6x as of year-end 2011 and retained cash flow (RCF)/debt strengthening to 64.6% for the 12-month period ending September 2012 from 47.9% as of year-end 2011. Additionally, as a consequence of Euroasia default in March 2012, cross default clauses have been triggered on four loan agreements. In July 2012, waivers were obtained from the related banks, resulting in no imminent cash need.
Moody's has kept Turkcell's ratings on par with the sovereign rating for Turkey, as, in the rating agency's view, the shareholder conflict as well as the high contribution from the domestic market do not warrant a delineation.
Firstly, with more than 80% of revenues and EBITDA generated in the domestic market, the correlation between Turkcell and the macroeconomic environment in Turkey remains high with little diversification benefits from countries that also have weaker sovereign credit profiles than that of Turkey.
Secondly, although the shareholder conflict has not had a negative impact on the company's day-to-day operations, it has constrained decisions that Moody's believes are of significance with regards to (1) sizeable shareholder distributions, with no dividends for 2010 and 2011 having been dispersed despite a recommendation from the board for 2010; and (2) weaknesses in the governance structure, as evidenced by a gridlock over a number of issues such as convening shareholders' meetings. Therefore, the financials may in fact be stronger, while the shareholder conflict is constraining action, than it will ultimately be once the governance issues are addressed.
The stable outlook reflects Moody's assumption that Turkcell's financial profile will remain strong with debt/EBITDA around 2.0x and RCF/debt around 40%. The stable outlook also assumes that the shareholder dispute will not have an impact on the company's day-to-day operations.
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