TASHKENT

Fitch Ratings has assigned Uzbekistan-based Artel Electronics LLC (AE) a first-time long-term Issuer Default Rating (IDR) of ‘B’ with a Stable outlook.

“The Stable outlook reflects our expectation that AE will continue to benefit from its leading local market position and will generate sustained positive free cash flow (FCF) after 2022, which will support the group’s deleveraging capacity,” Fitch said.

The agency said that AE’s IDR was constrained by its small scale, limited geographical diversification, relatively low own technology content, high foreign currency exposure and expected moderate leverage following the planned refinancing as well as weak corporate governance practices.

AE is the leading household appliances producer in Uzbekistan with a domestic market share of over 50 percent depending on the product type.

“The rating is underpinned by AE’s leading domestic market position, expected strong funds from operation (FFO) margin of about 11-12 percent and successful and long-term cooperation with global brands such as Samsung,” Fitch said and added that the company’s rating also took into account its exposure to the operating environment in Uzbekistan.

AE primarily operates in Uzbekistan and while its share of export revenue is around 20 percent, this is mainly from the former Soviet republics.

However, AE is aiming to increase its export sales to about 30 percent by 2025, which should increase its geographical diversification, although it will still be concentrated in comparison with higher-rated peers like Arcelik and Whirlpool that have a global presence, the rating agency said.

The group’s business profile is also limited due to its narrow scale and concentrated customer’s base. The top three commissioners accounted for about 63 percent of sales in 2020.

Fitch said it had expected leverage levels to remain moderate for the rating and forecast FFO gross leverage to be around 3x at the end of 2021, assuming the company raises its gross debt to over 2,000 billion soums ($188,147) by the end of this year and gradually improve to under 2x through the medium term.

“If this deleveraging occurs, leverage would be strong for the rating and could provide positive rating pressure in the medium term,” Fitch said.