OREANDA-NEWS. Fitch Ratings says Arcelik AS's (BB+/Stable) proposal to separate Turkish sales, marketing, distribution and aftersales function from its global production operations will have no impact on the company's bond ratings. The proposed change is contingent on the Turkish Capital Markets Board's approval and Arcelik is confirming the change with bondholders.

The reorganisation will be effected by dividing the balance sheet of Arcelik through a partial spin-off, with the relevant assets and liabilities of the company being transferred to a new direct subsidiary, Arcelik Pazarlama A. S. (Newco).

Newco will be a wholly owned subsidiary of Arcelik and fully consolidated, with no changes to the presentation of Arcelik's financial reports. None of Arcelik's financial liabilities will be transferred to Newco. As Newco starts to trade, it will purchase goods from Arcelik and sell these to third-party customers. Fitch expects that current bondholders will maintain full access to Newco's assets, with no changes to recoveries.

In Fitch's view the reorganisation of the Turkish sales/dealer network and focus on receivables management could reduce Arcelik's structural cash leakage, which is negatively affecting free cash flow (FCF) generation. Arcelik's reported leverage is increased by higher-than-average working capital needs, as a significant portion of durable goods are sold on credit in Turkey.

Arcelik's increased focus on inventory and receivables management is reducing its working capital needs. Fitch would take a positive view of the reorganisation if it leads to a structural improvement in funds from operations (FFO) and FCF metrics.

The change could also improve the structure of Arcelik, by aligning the company to its global peers, which usually have separate customer financing subsidiaries or separate financial reporting for such subsidiaries. Fitch's approach assumes that the consumer financing operations' financial debt is not serviced by the cash flows generated by Arcelik's industrial operations, but predominantly by the recovery of the receivables from consumer finance debtors. Fitch already adjust Arcelik's key rating ratios for such effects, and therefore the reorganisation should not affect Fitch's financial forecasts.

Fitch will continue to monitor the reorganisation and the voting process, and could conduct a separate analysis if the reorganisation proceeds without bondholder consent.