(The following statement was released by the rating agency)
Jan 04 - Fitch Ratings has maintained Ankara-based construction company Yuksel Insaat A.S.'s (YI) Long-term foreign currency Issuer Default Rating (IDR) and senior unsecured ratings of 'B-' on Rating Watch Negative (RWN). Fitch has also maintained YI's USD200m outstanding notes, maturing in 2015, 'B-' rating with a Recovery Rating of 'RR4' on RWN.
The RWN reflects Fitch's continued concern about the company's tight liquidity and inability to access additional financing for its on-going projects as well as uncertainties on the company's investments and potential cash injections into projects.
Limited liquidity and inability to access additional financing: At end-H112 YI still exceeded the 4:1 bond covenant, which restricts the company ability to incur additional debt. Fitch believes that this limits YI's financial flexibility and has led to it facing short-term liquidity pressure. Leverage, which is still more than 4.0x Fitch adjusted gross debt/EBITDAR (5.3x as at end-2011), caused YI to exceed a 4:1 leverage bond covenant at the end of 2011.
Izmir Otoyol Refinancing: Fitch believes an imminent equity cash injection needed for the Gebze-Izmir highway projects puts pressure on YI's liquidity. However, YI has stated to Fitch it has no intention to fulfil this need through its current cash balances, which are needed to cover working capital needs. YI's ability to make the cash injections will depend on the sale of its Cobanli Hydro plant, which is at a due diligence stage and its ability to proceed with a sale and leaseback of its Ankara offices. Should the cash injection proceed without a concomitant cash inflow from the above mentioned sales, the ratings would be under significant pressure.
Leading Turkish Construction Company: The ratings continue to reflect YI's position as one of the main construction companies in Turkey, focusing on infrastructure construction contracts, mostly for government entities across Turkey, and the Middle East and North African region. YI is therefore well positioned to benefit from the expected growth in energy demand, as well as the need for improved infrastructure across many of its end-markets (notably in the Gulf region), where YI has a well-established presence.
Strong Revenue: YI's revenue grew strongly between 2008 and 2010. Although awards for new projects have declined significantly in Turkey since peaking in 2008, the impact is being partially offset by activity in YI's other markets. Fitch expects revenue to remain broadly flat in 2012 and then to show some improvement in the following years, whereas EBITDAR margins are expected to decrease towards 9%.
Libya Exposure: YI's exposure to Libyan operations affects the order book and future cash flow and increases the risk of machinery losses on construction sites. According to management, it will lose no more than USD170m of gross revenue over the life of its Libyan construction projects.
RATING SENSITIVITY GUIDANCE
Asset disposal plans: Asset disposals and/or an additional capital injection leading to significant deleveraging and an improved liquidity position could lead to positive rating action.
Execution of Deleveraging Plans: Any failure in the deleveraging plan or in providing additional capital injection from shareholders could put further pressure on YI's credit profile and result in negative rating action.
LIQUIDITY & DEBT STRUCTURE
Fitch believes that the USD49m cash balance as of end-June (USD108m end-2011) does not provide a comfortable liquidity cushion against possible economic downturns, delays in advance payments, increasing working-capital needs or for additional capex..
No access to additional financing:
At end-H112 YI still exceeded the 4:1 bond covenant, which restricts the company ability to incur additional debt. Fitch believes that this limits YI's financial flexibility and has led to it facing short-term liquidity pressure.