Operational disruptions caused by the earthquakes are unlikely to affect the credit profiles of rated Turkish corporates, APA-Economics reports citing Fitch Ratings.
We base this assessment on the initial feedback from issuers that neither their plants nor their operational assets sustained any significant damage as a result of the earthquake. However, it is still too early to determine the full indirect impact on corporate issuers' operations, given the significant damage to logistics and transportation infrastructure around the epicenter, including at the Port of Iskenderun.
These earthquakes first and foremost are a human tragedy, which has left tens of thousands dead and over 1.5 million people homeless.
The full macroeconomic impact of the devastating earthquakes is not yet measured. Fitch expects consumer demand and supply chains to be affected in the short term, despite rapid recovery efforts.
However, we expect the impact on the corporate sector to be modest, including a limited impact on Fitch-rated issuers’ credit profiles.
The majority of Turkish corporates’ ratings are already constrained by the Turkish Country Ceiling,
providing sufficient headroom under their standalone leverage metrics to absorb a short-term reduction in demand.
For those issuers with facilities near the epicenter, production has been temporarily halted until due diligence at the production facilities is completed, while earthquake-related damage is covered by insurance. Safety assessments at the facilities are still ongoing, with production to gradually resume once these are completed.
Issuers that do not have any production facilities near the epicenter, including exporters Arcelik and Sisecam, continue to operate normally.
The earthquakes affected one of the three regions in which the electricity distribution and supply company Enerjisa Enerji operates. By end-February, the company had restored normal business operations in most provinces of the affected Toroslar region, and it has been working on the physical and financial appraisals of the damage. In our view, some pressure may come from working capital issues, including delays in payment collection. This risk, included in the issuer’s negative rating sensitivities, means that continued working-capital outflow in the supply segment could lead to a rating downgrade if accompanied by an accelerated increase in volumes of short-term debt. Increased pressures on working capital due to the earthquakes may therefore increase the risk of a downgrade.
The assets of rated generating companies, including Aydem Yenilenebilir Enerji Anonim Sirketi, Zorlu Yenilenebilir Enerji Anonim Sirketi, and ENERGO-PRO, have not been affected.
Rated telecom operators Telecom companies Turk Telekom and Turkcell are likely to face some revenue losses due to service shortages. However, we expect the impact on credit metrics to be limited.
Fitch understands that there was no material damage to the operating facilities of rated companies in the consumer sector, such as Ulker, Coca-Cola Icecek, and Anadolu Efes. But we do not rule out some pressure on revenue and profits in 1Q23 from this extraordinary event.
We estimate that, due to the companies’ large scale and the resilient nature of demand for their products, the impact on annual financial results is unlikely to be material, which, together with most issuers’ sufficient rating headroom, means no imminent credit impact as a result of the earthquakes.
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