Moody’s downgrades 11 of Turkey’s largest companies to B1

Ratings agency Moody’s said on Thursday it had downgraded of 11 Turkish non-financial companies to B1 from Ba2, after cutting Turkey’s long-term issuer rating to B1 from Ba3 last week citing increasing risk of a balance of payments crisis and a government default. 

Moody's lowered the ratings of the seven Turkish corporates to B1 with negative outlooks, including Turkish Airlines, Turkey's top refiner Tüpraş, Koç Holding, Doğan Holding, Anadolu Efes Beverage Group, Coca-Cola Turkey, and Oyak Group, the conglomerate that manages pensions for Turkey's military personnel.

The rating agency also slashed the ratings of Turkish steel producer Ereğli Demir Çelik, one of the biggest shopping mall investors Rönensans Gayrimenkul, Turkey's top mobile phone company Turkcell, Turkish glassmaker Şişecam and placed their ratings on review for downgrade.

Petrochemicals maker Petkim was also placed on review by Moody’s. 

“The rating actions on these corporates is a direct consequence of the downgrade of the Government of Turkey and the lowering of Turkey's foreign currency bond ceiling, both to B1,” Moody’s said. 

According to Moody’s the credit fundamentals of those companies suggest a higher rating level, but these companies are materially exposed to Turkey's political, legal, fiscal and regulatory environment, including elevated risk of government-imposed measures to preserve the country's foreign exchange reserves.

The Turkish lira dropped by 30 percent against the dollar last year has fallen a further 10 percent so far this year over concerns over debt, high inflation and diplomatic disputes with the United States that could lead to sanctions.

The central bank’s foreign currency reserves shrank by $2.81 billion in April following a decline of $5.73 billion in March, raising concerns among investors that it may no longer have sufficient firepower to defend the currency in the case of a severe financial shock.

Moody’s in May warned that Turkey’s net FX reserves were low and the central bank had very little room to react to a severe currency weakness.

Ahead of March 31 local polls, Turkish authorities took an unorthodox measure and made it virtually impossible for foreign investors to short the lira, spiking the overnight offshore swap rate above 1,300 percent. 

Turkey also raised taxes on some foreign exchange sales to 0.1 percent from zero on May 15 and the central bank employed several secondary tools to boost confidence in the currency such as temporarily suspending repo auctions, while keeping its benchmark rate unchanged.