OREANDA-NEWS. Fitch Ratings has affirmed Global Liman Isletmeleri A. S.'s (Global Ports Holding, or GPH) USD250m senior unsecured notes due 2021 at 'BB-' with a Stable Outlook.

Fitch has reviewed GPH's ratings as part of its regular annual review schedule. The affirmation considers GPH's recent financial performance, which is broadly in line with Fitch's rating case expectations.

In September 2015, the European Bank for Reconstruction and Development (EBRD; AAA/Stable) acquired 10.84% of GPH through a capital increase. Fitch expects to receive an updated business plan once it has been approved by GPH's board following this change in shareholding structure. Once this is received, the agency will assess whether an additional interim review of the rating is necessary.

GPH's 'BB-' rating reflects its structural exposure to two volatile business segments: the commercial segment (around 57% of 2014 pro forma EBITDA) with significant exposure to the containerised export of marble from Akdeniz, and the cruise business (around 43%). Fitch views the cruise sector to be relatively sensitive to business cycles. The rating is also constrained by the issuer's acquisitive corporate profile and unsecured bullet debt structure including exposure to refinancing risk.

Our analysis of GPH focuses on the Turkish port business (recourse business perimeter) as the Turkish subsidiaries are designated as guarantors of the rated bond. Under our approach, the subsidiaries funded with non-recourse debt contribute to the recourse perimeter only through dividend distributions.

KEY RATING DRIVERS
Volume Risk - Weaker
Commercial volume continues to be predominantly driven by containerised marble exports to China from GPH's Akdeniz port. While lower demand has impacted these volumes in 2014 and 1H15, this has allowed GPH to increase diversification in its commercial segment to some degree (down from 75% of total commercial revenues in 1H14 to 66% in 1H15). The decline in volumes due to containerised marble has been compensated in part by increases in other commodity volumes and by price increases.

Cargo and throughput have grown by 0.8% and 10.7%, respectively, from 2012-2014; cruise passengers have grown by 32.2% over this period, driven in part by acquisitions. In 1H15, sluggish Chinese demand for marble and the weakening EUR/USD in the European cruise ports impacted USD-denominated revenues and EBITDA, respectively, for the commercial and cruise segments. The concentration risk of commercial revenues and exposure to the more volatile cruise segment suggest a 'weaker' volume assessment.

Price Risk - Midrange
In both commercial and cruise segments, GPH's Turkish ports benefit from full flexibility with regards to its pricing policy. For the Turkish ports within Fitch's recourse perimeter, the Turkish competition law and authorities only prevent against 'excessive and discriminatory pricing', for which there is no history of enforcement. The shipping lines calling at the port have not contested the tariffs so far. The management at GPH typically favours short-term contracts with its customers, including incentives at times. The pricing flexibility is balanced by the lack of long-term visibility and results in a Midrange assessment.

Infrastructure Development and Renewal - Stronger
None of the Turkish ports within GPH's portfolio has a regulatory requirement to increase capacity, and all have sufficient capacity headroom to deliver the expected throughput. However, Port of Bar and Port of Lisbon have committed to carry out upgrade works for an overall amount nearing USD25m as an undertaking of the respective concession agreements. These works will most likely be funded on a non-recourse debt at the subsidiary level.

Debt Structure- Weaker
Rated debt consists of USD250m senior unsecured corporate-style debt issued by GPH. The debt matures in 2021, which exposes the issuer to refinance risk at maturity, similar to that of Mersin Port (BBB-/Stable), which also has bullet USD debt but is a more project finance style structure. Covenants are weak and include a gross debt/EBITDA covenant of 5x. There are no current limitations on acquisitions but the recent (September 2015) acquisition of approximately 11% of GPH by the EBRD is expected to result in additional oversight, corporate governance, due diligence etc. for any new acquisitions.

RATING SENSITIVITIES
A diversification of the business perimeter, leading to greater stability of the cash flow, which does not compromise GPH's financial performance, could result in positive rating action.

A material reduction of the business perimeter, diversification into riskier business areas, or weaker prospects for refinancing a few years before maturity could result in negative rating action.

SUMMARY OF CREDIT
GPH is a fairly diversified Turkish port conglomerate with operations spanning both commercial and cruise activities. The largest contributor in the group is the commercial port in Antalya, Port Akdeniz, an export-led facility focused on the shipment of containerised marbles to Asia. Port Akdeniz benefits from a virtually captive hinterland with good in-land connections.