Investing.com -- Fitch Ratings has downgraded the Long-Term Issuer Default Rating (IDR) of Sasa Polyester (IS: SASA ) Sanayi Anonim Sirketi (Sasa), Turkey’s largest polyester producer, to ’B-’ from ’B’ on Friday, March 21, 2025. The downgrade is due to limited financial flexibility, ongoing capital investment amidst weak market conditions, and a high proportion of short-term debt. The outlook remains stable.

Sasa’s downgrade reflects its high leverage, which exceeded Fitch’s previous negative sensitivity of 5x for a prolonged period. The stable outlook is based on Fitch’s expectations of Sasa gradually reducing its leverage towards 5x by the end of 2026, assuming no significant growth capital expenditure or deferring the next investment phase until its financial profile significantly strengthens.

The rating also considers Sasa’s strong domestic market position as the largest Turkish polyester producer and its growing vertical integration. However, it is balanced by single-site asset concentration and exposure to the domestic Turkish economy, accounting for 77% of sales.

Key Rating Drivers include delayed deleverage due to cost overrun on the company’s purified terephthalic acid (PTA) facility, which resulted in EBITDA net leverage increasing to 12.5x in 2024 from 8.5x in 2023. Fitch forecasts a decrease to 6.9x in 2025, still above the previous negative sensitivity of 5.0x. Fitch expects leverage to decrease to 5.1x in 2026 and towards 4x by 2028 as the company realizes benefits from the completion of its current investment projects.

Sasa’s liquidity has weakened due to an increased reliance on short-term funding. Current debt accounted for around 43% of the total at the end of 2024, compared to 35% at the end of 2023. The company’s high debt load is putting pressure on EBITDA interest cover ratios, expected to average around 1.5x over the rating horizon.

Market conditions for polyester producers are expected to continue to be challenging in the short term due to weak macroeconomic growth and aggressive competition from Chinese and southeast Asian polyester producers. Sasa generated 77% of revenues in its domestic market in 2024, where tight monetary policy is expected to moderate GDP growth in 2025.

The 1.75 million tonne (mt) PTA facility supplying Sasa’s main feedstock started operation in March 2025, and commissioning of new fibre and melt-to-resin plants with combined capacity of 700,000 tonnes is on track to be completed on budget by the end of the first half of 2025.

Sasa’s manufacturing facilities are concentrated in a single site in Adana, Turkey, exposing the company to potential disruptions. However, the plant’s segregation into 24 production lines mitigates this risk.

Sasa accounts for around 54% of domestic polyester production capacity. Fitch believes that expansion of Sasa’s capacity from 1.2mt in 2024 to 1.9mt in 2025 can be absorbed by the domestic market, and will bolster its market share due to the smaller size of other domestic producers.

Sasa is majority owned by Erdemoglu Holding, which directly owns around 57% of shares and controls an entity that owns a further 20% of Sasa’s shares. Sasa operates independently, relies predominantly on external funding, has its own treasury functions and does not provide any guarantees for other group companies.

Sasa’s foreign-exchange (FX) exposure is manageable, as 99% of sales are indexed to the euro and US dollar. Raw materials prices (accounting for around 75% of operating costs) are also hard currency denominated. As of December 2024, around 5% of total debt was Turkish lira denominated and similar levels are expected in forecasts.

Fitch’s Key Assumptions within their rating case for Sasa include sales volumes of 1.3mt in 2025 and 1.6mt average per year over 2026-2028, EBITDA margin around 20.5% in 2025 and averaging around 22% over 2026-2028, and cumulative capital expenditure of around $0.4 billion over 2025-2028.

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