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Moody's Investors Service has today downgraded to Caa1 from B3 the corporate family rating (CFR) of Yuksel Insaat S.A. ("Yuksel") and the Probability of Default Rating to Caa1-PD.
Concurrently, Moody's has also downgraded to Caa1 from B3 the debt instrument rating on the USD200 million of notes due 2015 issued by Yuksel. At the same time Moody's has maintained all ratings on review for downgrade.
The primary driver for the downgrade to Caa1 is Moody's assumption that Yuksel's liquidity profile will further deteriorate over the course of 2013. Despite contemplated near-term measures -- such as a moderate equity injection and a sale-and-lease-back transaction, both totaling ca.
USD 44m -- Yuksel's liquidity requirements for 2013 will not be covered.
These include an equity injection of USD 58m, of which USD 40m will be paid in the first quarter of 2013, for the Gebze-Izmir motorway project, debt repayments as well as capital expenditures, complemented by working capital releases. Yuksel's management expects the disposal of its HES assets within a short period with disposal proceeds to be injected into the Gebze/Izmir motorway project. Absent this disposal in a timely manner and if proceeds fall short of the motorway equity contribution, Moody's believes that Yuksel's scheduled payments and obligations are unlikely to be covered by the planned one-off liquidity injections and internally generated cash flow.
Moody's has maintained ratings on review for downgrade as management and shareholders are still evaluating additional options to shore up liquidity amongst which are further asset disposals that could result in additional and material cash injections. Moody's has not factored these potential liquidity-enhancing options into the rating as the execution is subject to risk and such the likelihood is more remote than the immediate measures the company is taking.
WHAT COULD CHANGE THE RATING UP/DOWN
Ratings could be further downgraded if the deterioration of the liquidity profile accelerates. A shortfall in operating cash flow, higher, unplanned capital expenditure and
As ratings are on review for downgrade, an upgrade is highly unlikely at this juncture. For the outlook to be stabilized Moody's expects Yuksel to stop the cash leakage supported either by (i) further asset disposals, (ii) termination of projects that require equity contributions and that have limited/no recourse to the group, (iii) or sizable shareholder injections.
Yuksel Insaat A.S. (Yuksel), which has corporate headquarters in Ankara, Turkey, is among the 10 largest construction companies in the country.
The company was established in 1963 by the Sazak and Sert families and maintains a visible footprint in Turkey, where more than half of its revenues are generated, but has expanded into the Middle East and North Africa (MENA) region as well as Central Asia over recent years to diversify its revenue streams. The company generated revenues of TL1.3 billion (around USD697 million) in its financial year 2011.
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