Moody's Investors Service has assigned a Baa3 long-term issuer rating to Abu Dhabi-listed Fertiglobe with a “stable outlook”, while Fitch Ratings has allocated the world’s largest seaborne exporter of urea and ammonia a first-time long-term Issuer Default Rating (IDR) of BBB with a stable outlook.
The investment grade Baa3 rating reflects the “company’s high profitability and cash generation capability” against its exposure to a cyclical end-market and its significant share of capacity in Egypt and Algeria that exposed the company to various geopolitical risks, Moody's said.
A cyclical industry is sensitive to the business cycle, with revenue higher in periods of economic prosperity and expansion, and lower during economic contraction.
Fitch Ratings’ investment grade rating reflects Fertiglobe's “strong cash flow generation from young assets that are strategically located to serve global ammonia and urea markets and its competitive gas cost”, the American credit rating agency said in a statement on Monday.
Fertiglobe, a joint venture between Abu Dhabi National Oil Company and Netherlands-listed OCI, raised about $795 million from its initial public offering on the Abu Dhabi Securities Exchange last year, amid strong demand from international, regional and local investors.
OCI is the majority shareholder with a 50 per cent controlling stake, while Adnoc owns a 36 per cent share. The company had a market capitalisation of Dh40.5 billion ($11bn) as of June 27.
Its output capacity comprises 6.7 million tonnes of urea and ammonia, produced at four units in the UAE, Egypt and Algeria, making it the largest producer of nitrogen fertilisers in the Middle East and North Africa.
Despite the importance of Fertiglobe's plants to the economies of Egypt and Algeria, Moody's said operating in these countries involves “a high level of economic, political and operational risk”.
The company's track record of operating in these environments indicated “some ability to effectively manage the exposure”, it added.
Moody's also expects that Fertiglobe will swiftly adapt its capital allocation if required.
The company benefited from “competitively priced fixed price gas contracts which in some cases contain cost escalation clauses if ammonia / urea prices increase above certain thresholds”, it said.
“These gas price contracts position the company in the first quartile of the global urea and ammonia cost curves … furthermore, the company benefits from strategically located production capacity east and west of the Suez Canal.”
In the first quarter of 2022, Fertiglobe's net profit surged more than three-fold to about $467m, driven by increased selling prices across the company's product line. Revenue more than doubled to $1.2bn.
It employs more than 2,600 people and the company is incorporated in The Abu Dhabi Global Market.
Fertiglobe's liquidity profile is excellent, Moody’s said. As of March, the company had about $1.26bn of cash on its balance sheet and access to a $300m undrawn revolving credit facility.
Its earnings before interest, taxes, depreciation, and amortisation (EBITDA), and cash generated from Abu Dhabi alone, could service the company’s debt and support credit metrics in line with an investment grade rating, Moody's said.
Fitch Ratings expects Fertiglobe to generate record EBITDA of more than $2bn this year, up from $1.5bn last year, supported by all-time high ammonia and urea prices.
“This is explained by high global crop and gas prices, exacerbated by the war in Ukraine due to the important role of Russia, Ukraine and the Black Sea, notably for the global trade of ammonia,” it said.
“As supply gradually improves and gas prices ease, we expect ammonia and urea prices to return to mid-cycle levels by 2024, translating into an EBITDA for Fertiglobe of about $0.8bn.”