The Cherifien Phosphates Office (OCP) could stay robust in the face of difficult industry conditions and sustain adjusted funds from operations (FFO) to debt in 2023 between 20%-30% in compatibility with the ‘BB+’ grade, according to S&P Global Ratings.
BB+ credit rating is a notch above BB, meaning that it has a slightly lower credit risk.
OCP reported an EBITDA (net income (earnings) with interest, taxes, depreciation, and amortization added back) of MAD 7.7 billion in the first half of 2023, down from MAD 28.1 billion in the first half of 2022.
The fall in EBITDA reflects a significant decrease in phosphate fertilizer prices, which are on a cyclical downturn from record levels recorded in 2022, as well as subdued demand and volumes this year.
A reduction in operating expenses, including essential raw materials such as sulfur and ammonia, only partially countered the price and volume pressures.
S&P Global forecasts that OCP will report adjusted EBITDA of MAD26 billion-MAD28 billion in 2023 and MAD38 billion-MAD40 billion in 2024.
This is a revision from MAD40 billion-MAD41 billion in 2023 and MAD47 billion-49 billion in 2024, the same source anticipated in July 2023, which is significantly less than the MAD47 billion that the company reported in 2022.
The same source’s forecast factors hinted at a recovery in phosphate fertilizer prices in the second half of 2023 amid limited phosphate capacity additions.
“We also expect broadly favorable fertilizer affordability, with resilient crop prices and a historically low stock-to-use ratio bolstering farm economics,” said S&P Global in a fresh press release.
According to the New York-based financial analysis firm, OCP will alter its investment plans to the current industry conditions and lower profits this year. As a result, the firm’s plan currently assumes MAD18 billion-MAD20 billion in capital spending in 2023, rather than the MAD25 billion-MAD26 billion S&P assumed before OCP released its first-half results.
According to revised predictions, the company’s adjusted FFO to debt ratio would stay around 35% in 2024, in line with the firm’s expectations. This follows an incredibly excellent year in 2022 when OCP achieved an adjusted FFO-to-debt ratio of 66%.
The rating is based on OCP’s financial policy commitment to an investment-grade stand-alone credit profile and maintaining enough liquidity throughout the year.
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