OCP awarded “Baa3” Investment Grade rating by Moody’s
The rating agency Moody’s has assigned an inaugural rating of Baa3 (Investment Grade) with a stable outlook to OCP Group. This distinction of the Moroccan group is explained by many factors including its profitability, its leadership position, its investment program, the prospects of phosphate demand.
OCP Group has just obtained this rating from Moody’s thanks to a unique recipe that places it above its competitors. As the world leader in the phosphate fertilizer market thanks to its access to about 70% of the world’s phosphate reserves, the Group capitalizes on its low production cost (which translates into higher margins than its competitors), while pursuing prudent financial policies.
In its rating, Moody’s took into account OCP’s excellent liquidity which allows the group to support its expansion plan. OCP’s financial policy is explained by a net debt to EBITDA ratio maintained below 2.5x on average throughout the cycle.
Additionally, OCP will continue to pay dividends to the government while pursuing an ambitious capital expenditure program from 2022 to 2024, which should result in a negative free cash flow during this time.
While mentioning the group’s commitment to meeting its targets and putting the necessary safeguards in place in the event of an unanticipated market downturn, Moody’s emphasizes the flexible and modular nature of the capex programme, which would mitigate negative pressures on cash flow and credit ratios. This would maintain credit ratios at adequate levels.
As projected by Moody’s, the outlook will be stable for the company, which is expected to maintain adequate credit and liquidity measures throughout the year and cycle, even in a lower fertiliser price environment.
OCP’s financial indicators show continued strengthening for 2022 and a slight decline in 2023 and 2024 back to a (likely) decline in phosphate fertiliser prices and margins, according to Moody’s global market forecast, which took into account in its rating the cyclical nature of fertiliser sales and raw material prices that expose the company to earnings volatility.
The inaugural Investment Grade rating is therefore based on 4 levers favourable to OCP, namely its position as the world’s largest phosphate fertilizer producer, its low production cost, moderate financial leverage supported by prudent financial policies and finally a growing trend in phosphate demand worldwide.
The company’s low production cost compared to its competitors allows it to be more resilient to different seasonal patterns, periods of declining global fertilizer demand or rising raw material prices, which is a key factor in Moody’s rating.
Finally, the outlook for global demand for phosphate fertilisers, while it may fluctuate, will see upward trends in the coming years due to population growth and the reduction of agricultural land, which will require higher yields.