EM CEEMEA CREDIT
IPT: 10% area
FV: 9.75%
- We expect to see FV @ 9.75% yield or z+575bp (see chart below). That gives a small 5bp extension pick up vs our anchor point, distribution provider GDZELE 29s. We take into account the WNG indication, thus expecting the FV estimate for the deal to sit well inside benchmarks ZOREN 30s and VESTL 29s.
- When looking for comparables, we focus our attention on recent vintages issued by peers, ie ZOREN (B3pos/-/B+), VESTL (B3/-/B+) and GDZELE (B2/-/BB-). In particular, lower rated ZOREN 11 Apr30 charts @ z+630bp or 10.30% yield (launched @ 11% back in Oct ’24), one notch lower rated VESTL 9.75 May29 charts @ z+583bp or 9.83% (launched @ 9.875% back in May ’24) and similarly rated and sub-bench GDZELE 9 Oct29 charts @ z+570bp or 9.70% yield (launched @ 9.25% back in Oct ’24). We expect to see on-going demand for this type of corporate risk and we view the stance on Turkish risk as supportive for credit. For reference, we also chart LIMAK 9.75 29 @ z+561bp, issued out of Limak Cimento Sanayi (building materials business).
- Peer ZOREN operates a growing renewables business in a vertically integrated utility generation (991MW installed capacity) and distribution model in Türkiye, as part of well diversified Zorlu Holding group. Ratings are supported by stable cash flows stemming from regulated business as well as expectations for improving leverage trajectory.
- Peer GDZELE, 100% owned by privately held Aydem Holding, operates as an electricity distribution provider. Its metrics benefits from the highly regulated business it operates in, supported by improvements of the inflationary stance with exposure to political and macro risks, which can trickle through in terms of speed of tariff adjustments and inflation impacting on operations. The impact from FX trends also remains a risk factor, with local Lira denominated revenue flows covering dollar denominated debt.
- Limak Renewable Energy is a energy producer with total installed capacity of 985MW, with 852MW hydroelectric power plants, 119MW solar plants and a14 MW geothermal plant, which in total make up less than 1% of market share in Turkey.
- Concentration is high with the two hydro plants accounting for 75% of generation and 90% of EBITDA. Co. cash flows are 50% linked to USD via feed-in-tariffs with 5.5years remaining. Co. has high capex plans (USD600mn) as it looks to increase capacity, leading to negative FCF of around $200mm between 2024-28.
- FFO to net interest of 2.4x in FY24. Co. has an internal leverage target of net debt to EBITDA of target of 3x but is expected to range between 2.5-3x over the next two years.
- Besides macro developments, volumes, Feed in tariffs (to be maintained), capex (inline with guidance) and no dividend payments are key for credit ratios and for the Co.’s credit.
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