Fitch affirms OCP at 'BB+' with stable outlook

OCP's IDR is constrained at the level of its majority shareholder Morocco (BB+/Stable) given the close links between the company and the sovereign. Fitch continues to assess the linkage between OCP and Morocco, its 94% direct shareholder, as moderate to strong in accordance with its Government-Related Entities (GRE) Rating Criteria and Parent and Subsidiary Linkage Rating Criteria.

The revision of the SCP reflects OCP's large scale, market leadership and strong cost position, and Fitch’s expectations that EBITDA net leverage will remain below 2.7x through the cycle, despite expansion CAPEX and normalising fertilizer prices. Fitch considers OCP's increased capacity and asset flexibility will support structurally higher through-the-cycle EBITDA generation. Flexibility in growth CAPEX will cushion potential weaker than expected fertiliser prices.

Key rating drivers

Global phosphate leader: OCP's ongoing 3 million t capacity expansion, of which 1 million t was commissioned in May 2023, will reinforce its position as a global market leader. It will also increase its flexibility to produce different types of phosphates fertilisers, including triple super phosphate (TSP) that does not require ammonia. OCP's large and flexible capacity, as well as its strong cost position on global cost curves, will support structurally higher EBITDA, which we forecast on average at MAD26 billion in 2023 – 2026 based on Fitch’s conservative price assumptions.

This is lower than 2022 EBITDA of MAD46.7 billion, which benefited from exceptionally high fertilizer prices. Fitch expects higher volumes to gradually mitigate the normalisation of fertilizer prices, which has already largely materialised in 2023. OCP is also expected to maintain high EBITDA margins, in the low to mid 30%.

Cost, resource advantage: OCP has access to the largest phosphate deposits in the world, which represent about 70% of the world's reserves. This supports the company's expansion strategy, especially as other regions face resource depletion in the long term. OCP's production assets are fully integrated, well positioned on global cost curves, and will benefit from the kingdom's renewable energy potential. However, ammonia and sulfur remain two key raw materials that OCP has to procure from third parties.

Read the article online at: https://www.worldfertilizer.com/nitrogen/24102023/fitch-affirms-ocp-at-bb-with-stable-outlook/