RPT-Fitch: Further Lira Losses Could Hit Turkish Corporate Ratings

Thu Jan 9, 2014 5:23am EST

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Jan 9 (Reuters) - (The following statement was released by the rating agency)

Recent losses for the Turkish lira won't have a severe effect on corporate credit profiles, but a further prolonged decline in the currency would put pressure on ratings in 2014, Fitch Ratings says.

Our initial assessment indicates the lira's approximately 15% drop against the dollar and 20% fall against the euro over 2013 will have a limited impact on credit metrics. However, Turkish corporates are historically and structurally vulnerable to FX volatility, in part due to currency mismatches between debt and cash flow and under-hedged positions on foreign-currency debt. A prolonged decline in the currency combined with the potential for other domestic shocks from the country's political crisis are therefore a risk to ratings in the coming year.

We will publish a more detailed analysis of the impact in the next few weeks. We believe the impact could vary significantly between different Fitch-rated corporates.

As most rated Turkish corporates are raw material importers, especially of energy and intermediate goods, margin pressure from rising costs is likely to be seen across the market. The impact of a prolonged decline would be worst on companies with little or no foreign currency revenues to offset rising costs. But those with a strong liquidity position should be able to mitigate the effects of the devaluation. For example, Dogan Yayin (BB-/Stable) has access to additional liquidity through the collection of receivables from previous asset sales denominated in a foreign currency as well as the potential for additional disposals.

Major exporters such as Arcelik (BB+/Stable), Habas (B+/Stable) and Merinos (B+/Stable) would probably only face limited credit implications in the short term. However, despite being backed by robust export revenues, margin pressure across much of the Turkish corporates sector is most likely to continue as GDP growth slows. The scale of the pressure will also depend on the specific markets companies are exporting to and their ability to increase prices in those markets.

We will continue to closely monitor the medium term effects of FX volatility on leverage metrics and sustainable negative effects on cash flow and interest cover metrics.

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