Rating Action: Moody's affirms the Baa3 ratings of four Turkish corporates
Global Credit Research - 15 Apr 2014
Milan, April 15, 2014 -- Moody's Investors Service has today affirmed the Baa3 long-term issuer ratings of CocaCola Icecek A.S. (CCI), Koc Holding A.S. (Koc), Ordu Yardimlasma Kurumu (OYAK) and Anadolu Efes Biracilik
ve Malt Sanayii A.S. (Efes), following the change to negative from stable of the outlook on Turkey's sovereign
rating on 11 April, 2014. The outlook on the ratings of CCI and OYAK remain stable, while the outlooks on the
ratings of Koc and Efes remain, respectively, positive and negative. Further details of the individual rating actions
are provided later in the Press Release.
"We have affirmed the Baa3 ratings of CCI, Koc and OYAK to reflect the resilience of the individual companies'
financial strengths," said Martin Kohlhase, a Moody's Vice President -- Senior Analyst. "We chose to affirm Efes'
Baa3 rating, as we believe that the tangible actions being taken by the company's management should result in
financial metrics being restored over the course of 2014, despite the significant operating challenges the company
faces in its core markets of Russia and Turkey."
Although rated Turkish corporates are negatively impacted by (1) recent foreign currency volatility; (2) the slower
near-term outlook for Turkish GDP growth; and (3) adversely affected investor sentiment, these rated Turkish
corporates have to some degree (1) pre-funded 2014 debt maturities with material cash holdings in predominantly
$-denominated deposits reducing short-term refunding risk; (2) extended their respective debt maturity profiles
with less immediate refinancing requirements; and (3) non Turkish lira (TRY) denominated revenues.
RATINGS RATIONALE
Anadolu Efes Biracilik ve Malt Sanayii A.S. (Efes)
The affirmation of Efes' Baa3 ratings recognises the tangible actions management has initiated to offset the
negative pressure on the company's financial profile. These include production facility closures in order to lower
the cost base and align underutilised capacity with weaker market demand in its core markets of Russia and
Turkey as well as the board of directors' decision not to distribute dividends, which is subject to general assembly
approval on April 18. Moody's expects that the measures will result in improvements over the course of the first
half of 2014 that will help reverse the company's weakened financial profile.
Efes' Baa3 ratings continue to benefit from the (1) substantial equity value from the company's 50.3% investment
in CCI, which is valued at around TRY6.8 billion ($3.2 billion); and (2) solid liquidity profile, with the bulk of 2014
debt maturities having been pre-funded.
Tighter regulation in the company's main Turkish and Russian markets has resulted in a structurally weaker
market with beer volumes and profitability taking a significant hit in fiscal year 2013. Volumes declined by 12.8%
and reported EBITDA for Efes' beer operations was down by 36% during this period. Even if Efes were to regain
the volumes it had lost in Russia due to the delisting of some retailers, Moody's anticipates that the company
would be in a less favourable position with lower profit contribution per unit sold. Nevertheless, the ratings
recognise the strong market position in Turkey where Efes captures over 75% of beer volumes sold.
Coca-Cola Icecek A.S. (CCI)
Moody's has affirmed CCI's Baa3 rating to reflect the pre-funding, the operating performance and the bottler
support from The Coca-Cola Company, which results in a one-notch uplift from CCI's standalone credit profile.
Although CCI's gross debt metrics deteriorated to 4.7x debt/EBITDA as of fiscal year ended (FYE) 2013, Moody's
has taken into account the degree of pre-funding in its affirmation where combined with other cash resources
results in net debt/EBITDA of 2.7x. The proceeds from the $500 million notes issued in October 2013 were
deposited in dollar-denominated accounts and have been partially utilised for the $300 million March 2014
repayment and are further earmarked for the $135 million club loan maturing in September 2014. Taking into
account the company's pre-funding Moody's calculates that CCI will have a debt/EBITDA ratio of pro-forma 3.4x.
In addition, reversing non-cash foreign currency (FX) gains and losses from EBITDA and debt would have
resulted in debt/EBITDA of 2.3x as of FYE 2013.
The company's operating performance has been fairly resilient as evidenced by relatively stable cash flow-based
credit metrics. Although Moody's expects that consumer sentiment in Turkey will weaken, CCI's reliance on the
domestic market in 2013 was at the lowest point in the company's history with a revenue contribution of less than
60% from Turkey. This lack of reliance insulates the company somewhat from the Turkish market. Finally, the
Baa3 rating continues to benefit from a one-notch uplift on the back of bottler support from The Coca-Cola
Company (Aa3 stable).
Koc Holding A.S. (Koc)
Moody's has affirmed Koc's Baa3 rating as it believes that the company displays significant resilience even in an
environment of heightened political uncertainty and slower economic growth. The decision to maintain the positive
outlook was influenced by the financial flexibility that the company has at the holding level combined with the
recognition that the diversified investment portfolio consists of a number of mature, dividend paying companies that
have varying sensitivities to the domestic market.
Koc has a track record of maintaining solid liquidity and follows a prudent approach when managing its investment
portfolio. The holding company had a net cash position of around $790 million as of FYE 2013, and has maintained
an average net cash position of about $750 million since 2009. With financial debt constituting of a single $750
million Eurobond due in April 2020, Moody's believes that the company is significantly resilient in the short-term to
the heightened economic and political uncertainty.
Koc group's exposure to the Turkish market is mitigated by export-oriented companies such as those in the
consumer durables and automotive segments. About a quarter of total group sales are derived from the
international market. In addition, refined oil-product sales through Tupras, Turkey's sole oil-refining company in
which Koc has an effective stake of 39.27%, is priced off international benchmarks (therefore generating a
"dollarised" revenue stream) and can be sold in the international market if required, making in effect a significant
portion of group sales less sensitive to domestic demand.
Ordu Yardimlasma Kurumu (OYAK)
The affirmation of OYAK's Baa3 rating takes into account Moody's expectations for Turkish GDP growth in 2014
of 2%-3%, which will allow OYAK's investments to operate in a still relatively benign environment. This
macroeconomic backdrop serves as a cushion for dividend income expectations. The Turkish lira-denominated
deposits of OYAK's sizeable cash balance of around TRY8.7 billion (around $4.6 billion) at FYE 2013 will actually
generate a higher interest income following the central bank's interest rate hike in January of 2014. In addition, the
value of OYAK's quoted equity investments has held up reasonably well despite the recent market volatility. Its
most valuable investment, an indirectly held 49% equity stake in Erdemir, appreciated by 7% in the first quarter of
2014. Furthermore, Oyak is virtually debt free in terms of parent company financial debt obligations.
WHAT COULD MOVE THE RATINGS UP/DOWN
Anadolu Efes Biracilik ve Malt Sanayii A.S. (Efes)
Efes' Baa3 rating could be downgraded if, over the course of the first half of 2014, the company's metrics have not
recovered to previous levels, with the EBITA margin for its core beer operations (i.e., excluding the impact from
consolidating CCI's financials, which Moody's deconsolidates) reaching double digit percentage levels,
debt/EBITDA below 2.5x and EBIT/interest expense improving to above 4x. An upgrade to Baa2 given the current
negative outlook is at this juncture very unlikely.
Coca-Cola Icecek A.S. (CCI)
An upgrade of CCI's standalone assessment would require a track record of reduced credit metric volatility, which
has been caused predominantly (but not exclusively) by foreign currency swings. Before considering upgrading
the rating to investment grade on a standalone basis, Moody's would require evidence that CCI's refinancing risks
were manageable (e.g., having access to committed facilities). A rating upgrade would also be dependent on (1)
EBITA margins trending towards 15% on a sustainable basis; (2) retained cash flow (RCF)/net debt approaching
35%; and (3) debt/EBITDA remaining consistently below 2.8x.
Conversely, Moody's could downgrade the rating if CCI were to increase its pace of expansion and/or shareholder
returns such that (1) EBITA margins were to fall below 10% in two consecutive fiscal years; (2) RCF/net debt
were to fall to below the high 20s in percentage terms on a sustained basis; and (3) debt/EBITDA were sustained
at above 3.5x. A reassessment of bottler support assumptions could also affect the rating and result in a
downgrade.
Koc Holding A.S.(Koc)
An upgrade of the Baa3 rating in the short-term is unlikely as we monitor developments in the sovereign and
banking environment and whether these will have any unexpected consequences for Turkish corporates.
However, Moody's would consider an upgrade if Koc's core companies display continued evidence of resilience in
a weaker political and economic environment.
Conversely, Koc's rating could come under negative rating pressure if the sovereign and banking environment
significantly deteriorates. Other reasons could include if market value-based leverage (MVL) exceeds 30% over
an extended period, for instance as a result of a structural decline in the value of investments during a period of
increased leverage. Downwards rating pressure would also arise if the company's liquidity deteriorates and cash
coverage declines below 3.0x.
Ordu Yardimlasma Kurumu (OYAK)
Moody's notes that large-scale investments by OYAK could limit future upgrade potential, depending on the
funding structure as well as expected returns. Given OYAK's close links with the Turkish economy and
dependency on the economic base from which the investments generate income, the rating remains constrained
by the rating of the Government of Turkey (Baa3 negative). However, as a necessary condition for an upgrade in
the event of a further upgrade of the government's rating, OYAK would have to maintain an MVL ratio of below
20% on a sustained basis, cash coverage of above 4.0x and have a higher portfolio diversification than is currently
the case.
A weakening of the Turkish economy could have an impact on the ability of its investment holdings to pay
dividends in line with previous years which is offset by OYAK's ability to obtain more favourable interest rates for
its deposits following the January interest rate hike. This could have implications on OYAK's cash coverage ratio
and were the ratio to drop to below 3.0x, Moody's could downgrade the rating. Likewise, if the MVL ratio were to
trend towards 30% this could result in a rating downgrade.
LIST OF RATING ACTIONS
Moody's took the following rating actions today:
- Affirmation of the Baa3 long-term issuer rating with a negative outlook for Anadolu Efes Biracilik ve Malt Sanayii
A.S. (Efes) and the Baa3 rating for the $500 million notes due 2022
- Affirmation of the Baa3 long-term issuer rating with a stable outlook for Coca-Cola Icecek A.S. (CCI) and the
Baa3 rating for the $500 million notes due 2018
- Affirmation of the Baa3 long-term issuer rating with a positive outlook for Koc Holding A.S. (Koc) and the Baa3
rating for the $750 million notes due 2020
- Affirmation of the Baa3 long-term issuer rating with a stable outlook for Ordu Yardimlasma Kurumu (OYAK)
The principal methodology used in rating Anadolu Efes Biracilik ve Malt Sanayii A.S. was the Global Alcoholic
Beverage Industry published in October 2013. The principal methodology used in rating Coca-Cola Icecek A.S.
was the Global Soft Beverage Industry published in May 2013. The principal methodology used in rating Ordu
Yardimlasma Kurumu (OYAK) and Koc Holding A.S. was the Global Investment Holding Companies published in
October 2007. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
The Local Market analyst for rating Anadolu Efes Biracilik ve Malt Sanayii A.S. and Coca-Cola Icecek A.S. is
Martin Kohlhase, 9714-237-9544.
The Local Market analyst for rating Koc Holding A.S. is Rehan Akbar, 971.4.237.9565.
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Martin Kohlhase
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Corporate Finance Group
Moody's Investors Service Middle East Limited
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