Fitch expects great reduction in gross debt of SOCAR’s petrochemical complex in Türkiye

Fitch Ratings predicts a decrease in the gross debt quantum of the petrochemical complex Petkim Petrokimya Holding AS (a subsidiary of SOCAR Türkiye) from $1.5 billion in fiscal year-end 2022 to around $1 billion in fiscal year-end 2023, according to Fitch report on the revision of Petkim’s ratings, Report informs.

“However, debt repayments will have broadly neutral impact on net debt as Fitch assumes substantial utilization of cash and deposits,” reads the report.

“As of end-June 2023, Petkim had around TRY10.5 billion of cash and cash equivalents versus TRY16.5 billion of short-term debt. Short-term debt includes TRY9.7 billion of liabilities resulting from letters of credit and a murabaha loan for naphtha procurement that we treat as debt.

The issuer successfully repaid $500 million bond in January 2023 through use of cash and $300 million three-year term loan; however, it remains highly reliant on domestic banks, roll-over of short-term debt and potentially support from the parent,” reads the report.

Fitch regards Petkim’s liquidity as tight despite an improvement compared to FYE22.

Fitch expects negative FCF to persist in 2023 and 2024 due to sharp increases in interest expense, lower earnings and ongoing capex requirements. Fitch expects FCF to be around breakeven in 2025-2026. Fitch assumes that Petkim will continue to utilize USD/EUR borrowings, which limits its exposure to spikes in domestic interest rates.

Fitch also expects Petkim to hold a cash balance between $100 million and $150 million in 2023-2026, which is lower compared to historic levels and may increase reliance on short-term funding in case of material working capital swings.

“Working-capital outflow of around TRY0.2 billion is expected in 2023, followed by net working-capital outflow of TRY3.7 billion in 2024-2026,” reads the report.

Petkim’s capex is expected at around 6.5% of sales in 2023, around 5% in 2024-2025 and 9% in 2026, as well as year-end USD/TRY rates of 30 in 2023, 34 in 2024, 37.5 in 2025-2026.