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Turkish refiner Tupras swings to Q2 net loss of TRY185mn

Refiner Tupras (TUPRS), Turkey’s largest company by turnover, swung to a net loss of TRY185mn in Q2 from a net profit of TRY870mn a year ago, according to a stock exchange filing.

The loss in the quarter was mainly the result of the sharp drop in Brent crude oil prices and capacity reductions amid lower demand brought on by the coronavirus (COVID-19) pandemic, according to Seker Invest.

Revenues fell 61% y/y to TRY9.3bn.

Tupras’ production declined 29% y/y to 4.91mn tonnes, suggesting a 70% capacity utilisation rate (CUR), while sales fell 26% y/y to 5.3mn tonnes. In H1, production and sales fell 20% to 10.9mn tonnes and 11.5mn tonnes, respectively.

From May 5 to July 1, the company had to halt production at its 220,000 barrel per day (bpd) Izmir oil refinery.


In April, the company lowered its production expectation for 2020 from 28mn tonnes (tpy) to 24mn tpy and slashed its sales estimate from 29mn tpy to 25mn tpy due to squeezed demand.

Starting from June, after Turkey started reopening parts of its economy closed in COVID-19 lockdowns, demand for Tupras’ products showed some recovery. However, air transport is still at very low levels.

On August 11, S&P Global Platts reported that Turkish diesel demand over the first eight days of August rose by 6.05% y/y to 471mn litres.

The increase was below the 7.5% reported in July and the 8.2% reported in June, but it was still a stark contrast to the fall of 27.7% in May, when travel restrictions imposed to combat the spread of the coronavirus were still in place.

Gasoline demand over the first eight days of August totalled 100mn litres, up 32.45% y/y, a sharper rise than the 24.5% reported in July and in contrast to the declines of 2.1% in June and 32.4% in May.

Sales of both diesel and gasoline were affected by the Eid holiday which ran officially from July 31 through to Aug. 3.

In Q1, Tupras reported a net loss of TRY2.27bn (€324mn) for the first quarter  versus a loss of TRY375mn in the same period a year ago.

In April, Fitch Ratings advised that Tupras has a policy of distributing large dividends, “but in light of the weaker results we do not expect the company to pay dividends in 2020 and 2021”.

In February, Tupras opted not to distribute a dividend from its TRY526mn of 2019 profit, which was down 86% y/y, since it closed the fiscal year with a TRY1.14bn loss in terms of the Tax Procedural Law records.

In March 2019, Tupras paid a TRY12.87 net cash dividend per share, marking a 12.03% dividend yield.

Fitch Ratings also revised its outlook on Tupras to negative from stable, while affirming the company at 'BB-', three notches below investment grade, in line with Turkey’s sovereign rating and parent Koc Holding.

Moody’s Investors Service sees Tupras at B1/Negative, four notches below investment grade, in line with sovereign and parent ratings.

Tupras’ FX deficit jumped to $1.38bn, or 17% of the company’s total assets, at end-June from $566mn at end-March, according to Tacirler Invest’s note on Borsa Istanbul-listed companies’ FX positions in the Q2 financials.

However, Tupras’ deficit compared lower than the $2.38bn, or 25% of total assets, at end-2019.

Turkey’s flag carrier Turkish Airlines has no rival in terms of its net FX deficit among Borsa Istanbul companies. Its deficit rose further to $9.23bn, 37% of total assets, at end-June from $8.7bn, 35% of total assets, at end-March. The company also posted a stunning loss of TRY2.23bn in Q2, bringing its total loss in H1 to TRY4.26bn.

The flag carrier is becoming an additional trouble for Turkey, which right now does not suffer from a lack of troubles. The general manager of the Turkish Wealth Fund (TWF), Zafer Sonmez, whom some critics have down as a fantasist, has implied that a required consolidation in the aviation industry may be led by Turkish Airlines.

Low-cost carrier Pegasus Airlines is also among the leading FX deficit carriers with $700mn, or 19% of total assets, at end-June.

Tupras’ parent Koc Holding, meanwhile, was carrying a chunky $536mn FX deficit on its balance sheet as of end-June but it was only 1% of its total assets.

Koc Holding’s carmakers Tofas and Ford Otosan had weighty FX deficits of $458mn (22%) and $773mn (29%), respectively, as of end-Q2.

On August 11, the Turkish competition authority launched a probe into Tofas and Ford Otosan along with Istanbul-listed car dealer Dogus Otomotiv, owned by debt-troubled local conglomerate Dogus Holding.

In October 2017, Tupras issued $700mn worth of seven-year eurobonds (XS1686704948) with a coupon of 4.5%.

Koc Holding, which is Turkey’s largest conglomerate, controls 51% of Tupras via subsidiaries. The remaining 49% is free-float. Turkey’s privatisation administration has one golden share.

Earlier this year, BlackRock and Lazard Asset Management informed the public disclosure platform (KAP) that their stakes in Tupras had fallen below the 5% threshold, a level which imposes an obligation on shareholders in Borsa Istanbul-listed companies to inform the public when their stakes move up or down.

Foreign investors’ stakes in the Tupras free-float fell to 39% as of August 14 from 64% at end-April and 78% at end-2019.

Tupras had a TRY20bn market cap as of August 17.

The Q2 financials season, which started on July 23 and will last until August 19, came under the shadow of the latest critical descent in the lira while COVID-19 was a plus this time.