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Turkcell's credit rating slashed as financial crisis continues

Turkcell, the biggest mobile phone operator in Turkey, has had its credit rating reduced as the country's economic crisis continues to put a squeeze on the comms industry

As if the ongoing problems with the sale of its PTT weren’t enough, the Turkish communications sector has received another blow after Turkcell’s financing vehicle Cellco Finance NV had its credit rating slashed by investors.

Moody’s Investors Service lowered Cellco’s senior unsecured debt ratings to B2, and placed them under review for a further possible downgrade.

A spokesman for the investor gave four main reasons for the current problems at Turkcell: a deterioration in both liquid assets and operating profile; a limited capacity to service maturing debt obligations and the need to secure long-term financing; increasing competition in the country’s mobile market from Turk Telekom and Isbank/TIM; and finally the perilous state of Turkey’s national economy.

According to Moody’s, the secondary review will focus “principally on mobile operator Turkcell’s ability to resolve short-term liquidity issues (including the successful re-negotiation of the terms of the syndicated facilities) and to extend its funding horizon beyond 2001.”

The study will also look at the cash flow impact of a forthcoming regulatory review, as well as the overall economic situation in Turkey.

Although Turkcell’s subscriber base is continuing to grow (a healthy 16% in the final quarter of last year), the company has suffered from the huge popularity of prepay systems.

With a limited number of contract subscribers, Turkcell has a very small guaranteed income, which is an obvious deterrent for possible investors.

Moody’s has reported that the mobile operator has a “limited funding horizon” at present.

Turkcell is reported to have “significant” debts to repay this year, including approximately US$392 million in principal amortizations and interest on its two bank loans, together worth $2.1 billion.

Last year the company had total revenues of $2.2 billion, and assets in the region of $3.9 billion.

Moody’s believes that Turkcell will need to undertake some serious renegotiation of terms with its banks, as well as securing “immeadiate financing” from other sources in order to carry on operating as it is now.

The other solution is to scale back operating and capital spend in the short term.

In order to renegotiate the existing terms, all of Turkcell’s investors must agree in order to avoid setting off cross-default clauses in the debt repayment structures.

Competitors of the beleagured company will be rubbing their hands at the news of financial cutbacks. Turkcell currently controls 70% of the GSM market, with around 10 million subscribers. Turk Telkom and the Isbank/TIM consortium will both be watching developments with interest.

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