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Rating Action:

Moody's downgrades Global Liman Isletmeleri 's ratings to B2; stable outlook

02 Aug 2018

London, 02 August 2018 -- Moody's Investors Service (Moody's) has today downgraded to B2 from B1 the corporate family rating and to B2-PD from B1-PD the probability of default rating of Turkey-based cruise and container port operator, Global Liman Isletmeleri A.S. (GPH). Moody's also downgraded to B2 from B1 the rating of the company's USD250 million guaranteed senior unsecured bond due 2021. The outlook on the ratings is stable.

RATINGS RATIONALE

The rating downgrade reflects the expectation that, despite some improvements in its recent operating and financial performance, GPH's financial profile will not sufficiently strengthen, over the next 12-18 months, to comfortably reach the thresholds required for the previous B1 rating. Moody's had previously indicated that, in order to support the previous B1 rating, GPH would have needed to exhibit, on a sustainable basis, funds from operations (FFO)/debt at least in the low teens in percentage terms and FFO interest cover of at least 2.5x. As of YE 2017, GPH reported an FFO/debt ratio of 9.1% and FFO interest cover of 2.3x. Moody's expects key credit metrics for YE 2018 to be broadly in line with YE 2017 levels.

GPH generated consolidated revenues of approximately USD116 million and consolidated EBITDA of USD75 million in 2017 (+1.3% and -0.8%, respectively, vs. 2016), through the management of its ten consolidated port assets. Cargo activities accounted for approximately 57% of consolidated revenues in 2017, with the remaining 43% represented by cruise ports. More recently, for the three months to March 2018, GPH reported revenues of almost USD21 million and EBITDA of USD11 million (+13.1% and +10.2%, respectively, vs. the corresponding period in 2017), mainly supported by increasing container volumes (+4.7% vs. the corresponding period in 2017) and passenger levels at its cruise ports (+6.3% vs. the corresponding period in 2017).

More generally, while GPH benefits from the greater diversification arising from an increased presence in the cruise port market and the number of ports managed, some of the company's core operations have challenges which continue to weigh on GPH's financial profile.

GPH's commercial operations, mainly concentrated at the Turkish port of Akdeniz-Antalya, continue to be characterised by limited diversification, given the strong bias towards exports of marble (mainly to China) and cement (to Northern Africa and Middle East), and vulnerability to changing economic and political conditions, given the profile of the served countries and the absence of long-term take or pay agreements.

In the cruise segment, cruise passenger volumes at the Ege port remain under pressure, as cruise lines reacted to political instability and terrorism risks in Turkey. Whilst Moody's expects passenger volumes at Ege to revert to growth, a material increase is not envisaged before 2019 at the earliest. As such, the lower share of high yield Turkish cruise port activities which have historically generated a significant share of GPH's earnings, is expected to be only partially offset by the good performance of GPH's Mediterranean cruise ports (in particular, Barcelona and Valletta).

In addition to the operating challenges discussed above, the risk to GPH's financial profile is further exacerbated by the group's highly acquisitive strategy, given the sizeable pipeline of cruise port acquisition opportunities under evaluation. Whilst such acquisitions would increase the group's size and diversification, M&A activity must be funded and may also bring operational and integration challenges. Nevertheless, Moody's notes that acquisition activity will likely be mainly undertaken at the level of GPH's parent company, Global Ports Holding PLC (GPH PLC), with the required equity contributions for such activity funded by the proceeds from its 2017 public listing.

GPH's rating also reflects its continued focus on attractive shareholder remuneration policies. Over the period 2016-17, GPH paid out dividends totaling more than USD65 million, which compares with a Moody's calculated FFO of cumulatively USD72 million for the same period, partially returning to shareholders the capital increase finalised in 2016, following the acquisition of a stake in GPH by the European Bank for Reconstruction and Development.

More generally, GPH's B2 rating continues to reflect: 1) the positive cash flow generation associated with the company's increasingly diversified cruise and cargo activities and associated limited operating covenants; 2) the pricing flexibility of the majority of its managed ports; 3) the limited capital expenditure requirements associated with the existing ports portfolio; and 4) the expectation of greater transparency and improved governance following the 2017 London listing of GPH's parent company, GPH PLC. These considerations are partially offset by 1) GPH's small scale compared to other rated port operators; 2) the concentration of commercial activities at the port of Akdeniz-Antalya, characterised by a relatively short remaining concession life (maturity 2028); 3) the limited long-term visibility in respect of revenue evolution; 4) the presence of relatively significant minority shareholders at some of its key port assets; 5) a leveraged financial profile; and 6) some concentration of debt maturities in light of the company's USD250 million bond maturity in 2021.

A corporate family rating (CFR) is an opinion on the expected loss associated with the debt obligations of a group of companies assuming that it had one single class of debt and was a single legal entity. The B2/LGD4 rating of GPH's USD250 million senior unsecured bond is in line with the CFR, reflecting the fact that 1) the majority of GPH's group debt is pari passu senior unsecured debt at the GPH level; 2) debt at Unrestricted Subsidiaries is non-recourse to GPH; and 3) the proportion of senior secured debt, mainly associated with the investment in the port of Barcelona, remains relatively small and is expected to fully amortise over time.

RATIONALE FOR THE STABLE OUTLOOK

The outlook on the ratings is stable, reflecting our expectation that GPH's financial metrics will remain broadly commensurate with the levels required for the B2 rating.

WHAT COULD CHANGE THE RATING UP/DOWN

A rating upgrade could result from GPH's credit metrics improving to a level consistently above the range for the current rating, namely an FFO/debt ratio in the teens in percentage terms and FFO interest cover in excess of 2.5x, coupled with a period of settled and stable operations evidencing a solid operating performance and generation of positive free cash flow.

Conversely, negative rating pressure would develop if GPH's credit metrics were to weaken to levels not considered commensurate with the current rating level, namely FFO/debt persistently in the high single digits in percentage terms and FFO interest cover below 2.0x. Furthermore, downward rating pressure could result from major acquisition activity that resulted in a negative change in the company's risk profile, a deterioration of the company's liquidity position and/or outsized dividend distributions.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Privately Managed Port Companies published in September 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Global Liman Isletmeleri A.S. is a cruise and container port operator based in Turkey. The company operates two cruise and ferry ports (Bodrum, Ege) located on Turkey's Aegean coast and one mixed cruise and commercial port (Akdeniz) located on Turkey's Mediterranean coast. In addition, GPH holds controlling stakes in the commercial port of Bar (Montenegro, 64% stake), as well as in the cruise ports of Barcelona (Spain, 62% stake), Valletta (Malta, 56% stake) and, indirectly, in the cruise port of Malaga (80% stake held through the Barcelona port). In addition, GPH has controlling stakes in three smaller ports in Italy (Cagliari, Catania and Ravenna). The group also holds non-controlling stakes in the cruise ports of Lisbon (Portugal), Singapore and Venice (Italy). GPH is fully owned by the holding company Global Ports Holding PLC, listed on the London Stock Exchange (34.37% free float, 5.03% EBRD and 60.6% Global Investment Holding).

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Raffaella Altamura
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Andrew Blease
Associate Managing Director
Infrastructure Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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