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Investing.com -- S&P Global Ratings has downgraded Ford Otomotiv Sanayi A.S. ( Ford Otosan (IS:FROTO)) to ’BB-’ from ’BB’ due to higher-than-expected leverage that will likely persist through 2026.
The rating agency expects Ford Otosan’s funds from operations (FFO) to debt ratio to gradually improve to about 23% this year and 26% in 2026, up from 20% in 2024, but still below the previous 30% threshold for its ’bb’ stand-alone credit profile.
The Turkish automaker’s leverage has increased due to slower earnings growth and higher debt levels than previously anticipated. S&P projects the company’s adjusted EBITDA margin will improve to 7.0%-7.2% in 2025-2026, from 6.5% in 2024, reflecting reduced mismatch between high domestic inflation and Turkish lira devaluation.
Ford Otosan, which generates about 85% of its earnings in Türkiye, is constrained by the country’s ’BB-’ foreign currency sovereign rating, limiting potential rating uplift from parent company Ford Motor Co . (NYSE:F)
After a negative free operating cash flow (FOCF) of TRY8 billion in 2024, S&P expects slightly positive FOCF this year, improving to nearly TRY10 billion in 2026. This improvement is attributed to profitability gains, working capital releases, and lower capital expenditure as production capacity projects and electric vehicle model launches are completed.
Despite these improvements, the company’s sustained annual dividend payments of TRY22 billion-TRY24 billion and increasing interest expenses will continue to weigh on leverage. Annual cash interest expense is projected to rise to TRY15 billion-TRY17 billion in 2025-2026, up from TRY12.8 billion in 2024.
The stable outlook reflects S&P’s expectations that Ford Otosan’s FFO to debt will remain in the 20%-30% range through 2026 and that it will continue to generate most of its earnings in Türkiye.
Ford Otosan reduced its dividend per share for the first half of 2025 to TRY17.1 from TRY43.3 in the first half of 2024. The company’s dividend policy includes a minimum payout ratio of 50%, with a historical average of about 60%.
Export sales represent approximately 85% of Ford Otosan’s total sales, with none directed to the U.S. In the first quarter of 2025, the company’s commercial vehicle export volumes increased by 3% while the overall European van market declined by nearly 12%.
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