The rating agency Moody’s assigned an inaugural rating of Baa3 (Investment Grade) with a stable outlook to the OCP Group. This distinction of the Moroccan group is explained by many factors including its profitability, its leading position, its investment program, the prospects for demand for phosphate.
The OCP Group has just won this rating from Moody’s thanks to a unique recipe that places it above its competitors. World leader in the phosphate fertilizer market thanks to access to approximately 70% of the world’s phosphate reserves, the Group capitalizes on its low production cost (which translates into higher margins than 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 maintaining a net debt to EBITDA ratio of less than 2.5x on average throughout the cycle.
In addition, OCP will lead from 2022 to 2024 an ambitious investment program combined with continuous dividends to the government which is expected to result in negative free cash flow during this period.
Moody’s stresses the flexible and modular nature of the capex program, which would make it possible to mitigate the negative pressures on cash and credit ratios, while mentioning the group’s commitment to achieving its objectives and putting in place the necessary measures in the event of unexpected market downturn, to keep credit ratios at adequate levels.
According to Moody’s projections, the outlook will be stable for the company which should maintain adequate credit metrics and liquidity throughout the year and cycle, even in a lower fertilizer price environment. .
OCP’s financial indicators show a continued strengthening for 2022 and a slight decline in 2023 and 2024 amounting to a (likely) decline in phosphate fertilizer prices and margins, according to Moody’s global market forecast which took into account in its rating the cyclical nature of fertilizer sales and commodity prices that expose the company to earnings volatility.
The inaugural Investment Grade rating is therefore based on 4 favorable levers for OCP, namely its position as the largest producer of phosphate fertilizers in the world, its low production cost, moderate financial leverage supported by prudent financial policies and finally a growing trend of phosphate demand in the world.
OCP Group’s low production cost compared to its competitors allows the company to be more resistant to different seasonalities, to periods of falling global demand for fertilizers or rising raw material prices, which is a key element in Moody’s rating.
Finally, the outlook for the demand for phosphate fertilizers at the global level, although it may be fluctuating, will experience in the coming years upward trends due to the increase in population and the reduction of agricultural land, which will require higher yields.