Moody's: Petkim's liquidity position will weaken following the purchase of the STAR refinery stake

# 11 January 2018 22:28 (UTC +04:00)

Petkim is looking to issue a $500 million bond in order to purchase an 18% stake in the STAR refinery from its shareholder, SOCAR Turkey Energy A.S. (STEAS), APA-Economics reports.

The purchase price of $720 million implies that the company will also utilize a material portion of its cash balance for the acquisition. Once operational in Q4 2018, the refinery will provide feedstock to Petkim and will enable the petrochemical company to realize material cost savings through reduced transportation costs of naphtha, lower conversion costs by using reformate instead of heavy naphtha for a portion of its feedstock as well as through reduced inventory costs, common infrastructure and shared services. As of 30 September 2017 (LTM), Petkim's adjusted debt to EBITDA was 1.5x and we forecast leverage to range between 3.5x to 4.5x over the next 12-18 months depending on petrochemical product price movements.

Petkim's current liquidity is adequate to meet its ongoing obligations supported by reported cash balance of $338 million as of 30 September 2017 combined with our forecast of about $200 million of unadjusted cash flow generation over the next twelve months. However, we forecast that the company's liquidity position will weaken following the purchase of the STAR refinery stake. Petkim has meaningful short-term debt, primarily consisting of working capital facilities and letter of credits related financial liabilities. As of 30 September 2017, the company reported debt due within one year of $332 million (excluding $192 million of Petlim container port related subsidiary debt).

Capital spending is forecasted to decline over the coming years as various investment projects are brought to completion. From 2018 onwards, investment capex is forecasted to be minimal while a major scheduled turnaround in 2018 will require about $60 million of maintenance capex. In 2019, maintenance capex is expected to be less than $30 million.

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