OREANDA-NEWS. Fitch Ratings has affirmed Habas Sinai ve Tibbi Gazlar Istihsal Endustrisi A.S.'s (Habas) Long-Term Foreign Currency and Local Currency Issuer Default Ratings (IDR) at 'B+' and National Long-term rating at 'A(tur)'. The Outlooks are Stable.

The affirmation reflects our expectation that the current elevated debt levels will continue to be offset by strong cash balances (TRY1.2bn at end FY15). Fitch expects that funds from operations (FFO) adjusted net leverage will return below 1.0x in the medium term once the new gas power plant becomes operational at end 2016. We also expect cash generation to improve, with the free cash flow (FCF) margin turning positive again, driven by lower capex after large investments in the past two years.

KEY RATING DRIVERS
Transparency and Disclosure
As a private company, Habas's transparency and disclosure levels are weaker than publicly listed companies, which continues to represent a material limitation on the rating.

Operational Profile Changing
Habas has started construction of an 800mw gas power plant, which is expected to be fully operational at the end of 2016. The plant will primarily supply Habas's internal requirements with the remainder sold to the market.

The capacity utilisation rates in the new hot strip mill were below our forecasts in 2015 due to challenging conditions in the steel market. However, Fitch forecasts that the capacity utilisation rates will reach 80% for the steel segment in the medium term.

Strong Liquidity, Improving Leverage
Habas has historically maintained a conservative financial policy, including maintaining large cash positions on balance sheet. In recent periods gross debt levels have risen to fund the new hot strip mill and power plant however continue to be around 90% covered by on-balance sheet cash. Fitch forecasts FFO net leverage of around 1.3x in 2016 (in excess of our negative guideline) but expect it to return to below 0.5x in subsequent periods.

KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for Habas include:
- Continued stress in steel markets through 2016, limiting revenue growth
- Capex back to historical levels, with no major investments
- No dividend payments to shareholders, (all added to equity) in line with historical track record

RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- An improvement in disclosure and transparency together with a strengthening of the company's operational profile resulting in improved scale, diversification and profit margins.

Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- FFO net leverage in excess of 1.0x, a consolidated EBITDAR margin below 4.0%, or a liquidity score below 1x.

LIQUIDITY
TRY1,2m cash balances at end-2015 cover 100% of short-term debt and approximately 90% of total debt. Habas has no committed bank facilities, which is common practice among Turkish corporates. Habas has a long history of maintaining a conservative capital structure.

Contact:
Principal Analyst
Cigdem Cerit
Associate Director
+34 934 678 840

Supervisory Analyst
Dmitri Kazakov
Associate Director
+7 495 956 7075
Fitch Ratings Moscow
Valovaya Str, 26
Moscow

Committee Chairperson
Alex Griffiths
Managing Director
+44 20 3530 1709

Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com.

SUMMARY OF FINANCIAL STATEMENT ADJUSTMENTS
- Fitch has adjusted the cash on balance sheet for TRY95m for cash that is deemed restricted.

Additional information is available on www.fitchratings.com. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary.

Applicable Criteria
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)

Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
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