October 17, 2012 / 4:25 PM / in 5 years

TEXT-Fitch rates Turkiye Petrol Rafinerileri 'BBB-(EXP)'

Oct 17 - Fitch Ratings has assigned Turkiye Petrol Rafinerileri A.S.
(Tupras) planned USD-denominated bonds an expected foreign-currency senior
unsecured rating of 'BBB-(EXP)'.

The final rating is contingent on the receipt of final documents conforming
materially to the preliminary prospectus. Tupras plans to use the proceeds from
the bond issue for general corporate purposes, including for debt and working
capital management.

Tupras has the following ratings: Long-term local and foreign-currency Issuer
Default Ratings (IDR) of 'BBB-' and National Long-term rating of 'AAA(tur)'. The
Outlooks are Stable.

The company's ratings incorporate Fitch's expectations of a weakening in credit
metrics in 2012-2014 until the Residuum Upgrading Project (RUP), the main part
of Tupras's large capex plan, will start to generate cash flow in 2015. The
large, primarily debt-funded USD3.4bn capex plan for 2012-2014 will, according
to Fitch's projections, result in a weakening of funds from operations
(FFO)-adjusted net leverage temporarily above the guideline for the rating
(2.5x). Ratios should improve from 2015 as Tupras returns to positive free cash

The RUP will enhance the company's business profile by improving the refining
product mix and substantially increasing EBITDA. In October 2011, Tupras signed
a USD2.1bn long-term financing for the RUP with 10 international banks. Fitch
currently expects that Tupras will have sufficient headroom under the financial
covenants included in the bank loan documentation. However, potential large
adverse movements in the Turkish lira/US dollar rate or inventory holding losses
may put pressure on covenant ratios.

The ratings are constrained by Tupras's generous dividend policy, which is
unlikely to change in 2012-2014, despite negative free cash flow driven by high

A ban on purchases of Iranian oil due to international sanctions could be
negative for Tupras's refining margins and working-capital needs, if Iranian
crude cannot be economically replaced with suitable alternative sources. In
March 2012, Tupras decided to reduce Iranian oil purchases by 20%. Currently,
Tupras benefits from an exemption that the US government granted to Turkey in
June 2012, which is subject to renewal every six months. Iranian oil is the most
significant of 13 different crude types processed by Tupras (47% of 2011 oil

In Fitch's view, Tupras's liquidity position was temporarily stretched at
end-June 2012 at the consolidated group level, when unrestricted cash of
TRY1.86bn (USD1bn) did not fully cover short-term debt of TRY2.1bn. The company
has no committed liquidity facilities, but has uncommitted undrawn facilities of
about USD8bn. Liquidity at the Tupras standalone level was sufficient at
end-June 2012 with unrestricted cash of TRY1.81bn against short-term debt of

Positive: Future developments that may, individually or collectively, lead to a
positive rating action include:
- Positive rating action is currently unlikely given the company's business
profile as a pure refining and marketing company and the large capex plan.

Negative: Future developments that may, individually or collectively lead to
negative action include:
- Following a weakening in 2012-2014, Fitch expects credit ratios to return to
levels commensurate with the current ratings in 2015 (FFO-adjusted net leverage
of below 2.5x and FFO fixed charge cover comfortably above 5x). While Fitch
rates the company based on long-term leverage projections, delays in the
recovery of its credit ratios, or significant underperformance in terms of FFO
would put pressure on the ratings.
- Substantial delays in the RUP construction process resulting in delays in
EBITDA improvement and ratio recovery would be negative for the ratings.
- A substantial reduction in Iranian imports by Tupras would be treated as an
event risk if Iranian crude cannot be economically replaced with suitable
alternative sources, and may lead to a review of the ratings depending on the
- Challenges to maintain an adequate liquidity profile.
- A deterioration in Turkey's ratings (Long-Term foreign currency IDR:
'BB+'/Stable; Country Ceiling: 'BBB-') could lead to a negative rating action on
Tupras's Long-Term foreign currency IDR, which would again be capped by the
Country Ceiling. A downgrade of Turkey's Country Ceiling would lead to a
corresponding downgrade of Tupras's Long-Term foreign currency IDR and
foreign-currency senior unsecured rating.

Additional information is available at www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable criteria, 'Corporate Rating Methodology', dated 8 August 2012, is
available at www.fitchratings.com.

Applicable Criteria and Related Research:
Corporate Rating Methodology
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