Moody’s places quake-hit Iskenderun Port operator’s eurobonds on review for downgrade

Moody’s places quake-hit Iskenderun Port operator’s eurobonds on review for downgrade
The quakes have put Iskenderun port out of action. / TV5, screenshot.
By Akin Nazli in Belgrade February 14, 2023

Moody's Investors Service has placed the eurobonds sold by Limak Iskenderun Uluslararasi Liman Isletmeciligi (LimakPort) on review for a downgrade, the ratings agency said on February 13.

Moody’s review for a downgrade reflects the uncertainty around the damage caused to the port's infrastructure caused by the huge February 6 earthquakes that hit southern Turkey and the timeline for resuming operations at the port.

LimakPort has a B/Negative rating, five notches below investment grade, from Fitch Ratings and a B3/RFD, six notches below investment grade, from Moody’s. LimakPort’s ratings are in line with Turkey’s sovereign ratings.

In 2011, LimakPort was granted a 36-year concession for Iskenderun Port.

In 2012Limak Holding sold a 20% stake in LimakPort to InfraMeda fund launched by the European Investment Bank (EIB), Italy's development finance institution Cassa Depositi e Prestiti SpA (CDP), Morocco’s state-owned Caisse de Depot et de Gestion (CDG), France’s Caisse des Depots et Consignations (CDC) and Egypt-based investment bank EFG Hermes.

Turkey’s main opposition Republican People’s Party (CHP) leader Kemal Kilicdaroglu dubs the Erdogan-regime-affiliated leading group of Turkish contractors the “Gang of five”. The five he refers to are Cengiz Holding (owned by Mehmet Cengiz), Limak HoldingKolin InsaatMapa Group (owned by MNG Group) and Kalyon Holding.

There are actually more than five Erdogan-affiliated contractors but Kilicdaroglu’s “Gang of five” term has become a common idiom in Turkey to refer to all such “businesspeople.”

In May 2021, during the buoyant times of COVID-19-related unprecedented monetary easing around the world, LimakPort sold $360mn of 15-year eurobonds (XS2339789732) with a 9.50% coupon.

In 2021, LimakPort’s revenues amounted to $80mn.

The fire that broke out at Iskenderun port as a consequence of the earthquakes was extinguished as of February 10 but cooling down operations were continuing.

The full extent of the damage to the port's infrastructure is currently unknown. It will require detailed assessments. The port's operations have been suspended, although RoRo vessels have been calling at the port for humanitarian purposes.

The port's service area includes the main industrial centres in the southeast of Turkey, including Gaziantep, Hatay, Kahramanmaras, Adana and Osmaniye. All of these locations have been severely affected by the earthquakes.

There are a huge number of casualties and the region's infrastructure has been badly damaged. There are material uncertainties regarding the potential long-term impact of the earthquakes on the local economy and infrastructure linking customers' production facilities with the port.

It is currently unknown what mitigation could be provided by any insurance claims.

LimakPort maintains insurance including for property damage and business interruption. The company's insurance policies are fronted by Turkish insurers as per regulation and re-insured by international insurance companies.

LimakPort has cash of $51mn. This amount includes pre-funded reserve accounts, including a six-month debt service reserve of $19mn, as required by the terms of the eurobonds

The debt service obligation of LimakPort are mainly related to interest payments. Scheduled debt repayments will increase gradually but are limited this year.

Under the terms of the eurobonds, LimakPort is obliged to deliver to the Trustee a notice of any event that qualifies as a force majeure event. The company delivered this notice on February 10.

Separately, the company's concession agreement includes a force majeure clause, which provides for the extension of the concession for the duration of the force majeure. A force majeure period of at least eight months could lead to the termination of the concession agreement.

Moody’s review will consider (1) the port of Iskenderun's ability to restore damaged infrastructure and resume its operations; (2) the costs associated with the port's revitalisation; (3) the potential loss of customers including in relation to damage beyond the port, but also the potential for the port to benefit from reconstruction efforts; and (4) the potential for any insurance proceeds and any other mitigating factors. Any rating downgrade could be more than one notch.