Sep 14, 2021 8:00 AM

Debt growth in the medium term-no doubt about creditworthiness

buy

In 3Q21, Sisecam (- / B2 / BB-) revenue grew by 14% qoq to $ 964 mn (+ 20% yoy), while almost all business segments (architectural glass, glass products, glass packaging, chemicals ) showed positive results. EBITDA grew by 5% qoq, reaching $ 232 mn (+ 33% yoy), while EBITDA margin was 24%. Manufacturing assets outside Turkey accounted for 44% of consolidated revenues, including 26% in the EU, while exports from Turkey accounted for 28% in 3Q21. We believe Sicecam generated at least 54% of its revenue in hard currency. This will partially offset the foreign exchange risk associated with foreign currency denominated debt, which accounts for 74% of the total, or US $ 1.5 billion in 3Q21.

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Positive growth in free cash flow and EBITDA helped Sicecam reduce net leverage to 0.9x from 1.2x in 2Q21. Significant cash reserves of $ 1.4 billion were sufficient to pay off debt until 2025, and together with a financial investment of $ 375 million, they could cover 85% of Sisecam's total debt. The company keeps most of its cash in hard currency, which provides additional protection against foreign exchange risk. We remind, however, that Sisecam has historically held a significant portion of its deposits with its parent Is Bank (B3 / B + / B +), which owns 51% of the company's shares. At the end of 3Q21, such deposits amounted to $ 1.2 billion, or 88% of cash.

In November, Sisecam announced plans to buy 60% of the Ciner Group's US soda stock for $ 450 million, about a third of the company's current cash position. Sisecam will acquire a fully operational soda ash plant as well as two new projects that will require Sisecam to fund a $ 2.4 billion capital investment in 2022-28. Management expects the net debt to EBITDA ratio to peak at 2.0x in 2024, which is generally a comfortable level (0.9x as of September 30), and the share of revenue in hard currency will reach 70% in 2026. We like the only Eurobond issue maturing in 2026 (XS1961010987). Eurobonds offer dollar yields of 6.6% with a duration of 3.5 years.

Türkiye Sise ve Cam Fabrikalari, or Sisecam, puts its genius in a bottle. The company makes a variety of glass products, including flat glass, glassware, glass packaging, and glass fiber. It also makes sodium and chromium chemicals. Customers for the company's flat-glass segment include major automakers, such as Ford, Toyota, and Hyundai. Its glass packaging is used by a variety of beverage makers, as well as by pharmaceutical and cosmetics companies. Under the mandate of the founder of the Turkish Republic, Mustafa Kemal Atatürk, Isbank founded Sisecam in 1935. Isbank owns around 64% of Sisecam.