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       T R O U B L E D   C O M P A N Y   R E P O R T E R

                          E U R O P E

          Wednesday, July 24, 2019, Vol. 20, No. 147

                           Headlines



F R A N C E

STENTYS SA: Board Asks Shareholders to Vote on Dissolution


G R E E C E

PUBLIC POWER: Greek Gov't Unveils Plan to Overhaul Finances


I R E L A N D

INVESCO EURO II: Fitch Assigns BB-sf Rating to Class E Debt
SOUND POINT II: Fitch Assigns B-(EXP) Rating to Class F Debt


R U S S I A

MIN BANK: Bank of Russia Acquires 99.9%+ of Ordinary Shares
MOSCOW UNITED ELECTRIC: S&P Raises ICR to BB+, Outlook Stable
VSK INSURANCCE: Fitch Upgrades IFS Rating to BB, Outlook Stable


T U R K E Y

ARCELIK AS: Fitch Affirms BB+ LT IDRs, Outlook Negative
EMLAK KONUT: Fitch Downgrades LT IDR to BB-, Outlook Negative
GLOBAL LIMAN: Fitch Affirms BB- $250M Sr. Notes Rating, Outlook Neg
MERSIN ULUSLARARASI: Fitch Cuts $450M Sr. Unsec. Debt Rating to BB-
ORDU YARDIMLASMA: Fitch Downgrades LT IDR to BB, Outlook Negative

RONESANS GAYRIMENKUL: Fitch Lowers LT IDR to BB-, Outlook Negative
TURKCELL ILETISIM: Fitch Lowers LT IDR to BB-, Outlook Negative
TURKIYE SIS EVE: Fitch Downgrades LT IDR to BB-, Outlook Negative


U K R A I N E

JSC CB: Fitch Affirms B- LT Issuer Default Ratings, Outlook Stable
KONDOR FINANCE: Fitch Rates EUR600MM Sr. Unsec. Notes final 'B-'


U N I T E D   K I N G D O M

ARCADIA GROUP: Dispute w/ Irish Life Over Lease to be Fast-tracked
DEBENHAMS PLC: May Enter Administration as Early as September
DEBENHAMS PLC: Sports Direct Drops CVA Challenge, Backs CPC Action
RM2: Seeks US$6-Mil. Cash Injection, Fails to File Accounts
VIVION INVESTMENTS: S&P Puts Prelim. 'BB' LT Corporate Rating

WALNUT BIDCO: S&P Assigns Prelim 'B+' ICR, Outlook Stable

                           - - - - -


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F R A N C E
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STENTYS SA: Board Asks Shareholders to Vote on Dissolution
----------------------------------------------------------
Reuters reports that Stentys SA on July 22 said that its search for
a strategic partner has failed.

According to Reuters, the company's board of directors has decided
to ask shareholders to vote on dissolution of the company.

The company has considered asking a competent commercial court to
appoint an ad hoc representative to assist it in steps to be taken
and to ensure that interests of various stakeholders are preserved,
Reuters discloses.

An extraordinary shareholders' meeting will be convened in the
coming weeks, Reuters states.

The group's cash position at June 30 stood at EUR8.1 million, to be
used to face the company's liabilities, Reuters relays.

The company does not foresee any liquidating dividend to
shareholders, Reuters notes.

The net asset value of June 30 is set to be released by Oct. 31,
Reuters says.

The company has requested suspension of trading of shares on
Euronext Paris until Oct. 31, Reuters relates.




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G R E E C E
===========

PUBLIC POWER: Greek Gov't Unveils Plan to Overhaul Finances
-----------------------------------------------------------
Angeliki Koutantou at Reuters reports that Greece unveiled on July
22 a plan to overhaul loss-making state-controlled Public Power
Corp. (PPC) to shore up its finances, including voluntary
redundancies and selling shares in its distribution network.

PPC, which is 51% owned by the state, has been struggling to
collect part of more than EUR2.4 billion (US$2.7 billion) of
arrears from bills left unpaid during the country's debt crisis,
which began in late 2009, Reuters relates.

According to Reuters, under a post-bailout agreement between Greece
and its lenders, PPC sells power at below-cost prices to
alternative producers to help open up the market, a measure which
has also weighed on the utility's profit.

Outlining his main policy for PPC after the Greek conservative
government won a July 7 election, Energy Minister Kostis Hatzidakis
said that Greece will seek to scrap that obligation, Reuters
notes.

In a bid to boost its liquidity, Mr. Hatzidakis, as cited by
Reuters, said that PPC will also double its efforts to collect as
much as it can out of the EUR800 million (US$897.36 million)in
arrears from habitual defaulters.




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I R E L A N D
=============

INVESCO EURO II: Fitch Assigns BB-sf Rating to Class E Debt
-----------------------------------------------------------
Fitch Ratings has assigned Invesco Euro CLO II Designated Activity
Company final ratings.

Invesco Euro CLO II Designated Activity Company is a securitisation
of mainly senior secured loans (at least 90%) with a component of
senior unsecured, mezzanine and second-lien loans. A total note
issuance of EUR411.5 million is used to fund a portfolio with a
target par of EUR400 million. The portfolio is managed by Invesco
European RR L.P..The CLO envisages a 4.5-year reinvestment period
and an 8.5-year weighted average life.

Invesco Euro CLO II DAC
   
Class A;      LT AAAsf New Rating;  previously at AAA(EXP)sf

Class B-1;    LT AAsf New Rating;   previously at AA(EXP)sf

Class B-2;    LT AAsf New Rating;   previously at AA(EXP)sf

Class C;      LT Asf New Rating;    previously at A(EXP)sf

Class D;      LT BBB-sf New Rating; previously at BBB-(EXP)sf

Class E;      LT BB-sf New Rating;  previously at BB-(EXP)sf

Class F;      LT B-sf New Rating;   previously at B-(EXP)sf

Subordinated; LT NRsf New Rating;   previously at NR(EXP)sf

Class X;      LT AAAsf New Rating;  previously at AAA(EXP)sf

KEY RATING DRIVERS

'B+/B' Portfolio Credit Quality

Fitch places the average credit quality of obligors in the 'B+'/'B'
range. The Fitch-weighted average rating factor (WARF) of the
identified portfolio is 30.53.

High Recovery Expectations

At least 90% of the portfolio comprises senior secured obligations.
Fitch views the recovery prospects for these assets as more
favourable than for second-lien, unsecured and mezzanine assets.
The Fitch-weighted average recovery rate (WARR) of the identified
portfolio is 66.85%.

Limited Interest Rate Exposure

Up to 10% of the portfolio can be invested in fixed-rate assets,
while fixed-rate liabilities represent 3.75% of the target par.
Fitch modelled both 0% and 10% fixed-rate buckets and found that
the rated notes can withstand the interest-rate mismatch associated
with each scenario.

Diversified Asset Portfolio

The covenanted maximum exposure to the top 10 obligors for
assigning the final ratings is 21% of the portfolio balance. The
transaction also includes limits on maximum industry exposure based
on Fitch's industry definitions. The maximum exposure to the
three-largest Fitch-defined industries in the portfolio is
covenanted at 40%. These covenants ensure that the asset portfolio
will not be exposed to excessive concentration.

Adverse Selection and Portfolio Management

The transaction features a 4.5-year reinvestment period and
includes reinvestment criteria similar to other European
transactions. Fitch's analysis is based on a stressed-case
portfolio with the aim of testing the robustness of the transaction
structure against its covenants and portfolio guidelines.

Cash Flow Analysis

Fitch used a customised proprietary cash flow model to replicate
the principal and interest waterfalls and the various structural
features of the transaction, and to assess their effectiveness,
including the structural protection provided by excess spread
diverted through the par value and interest coverage tests.

SOUND POINT II: Fitch Assigns B-(EXP) Rating to Class F Debt
------------------------------------------------------------
Fitch Ratings has assigned Sound Point Euro CLO II Funding DAC
expected ratings.

The assignment of final ratings is contingent on the receipt of
final documents conforming to information already reviewed.

Sound Point Euro CLO II Funding DAC is a securitisation of mainly
senior secured loans and bonds (at least 90%) with a component of
senior unsecured, mezzanine, high-yield bonds and second-lien
assets. A total expected note issuance of EUR 406.75 million will
be used to fund a portfolio with a target par of EUR400 million.
The portfolio will be managed by Sound Point CLO C-MOA, LLC. The
CLO envisages a 4.6-year reinvestment period and an 8.5-year
weighted average life (WAL).

Sound Point Euro CLO II Funding DAC
   
Class A;            LT AAA(EXP)sf;  Expected Rating  

Class B-1;          LT AA(EXP)sf;   Expected Rating  

Class B-2;          LT AA(EXP)sf;   Expected Rating  

Class C;            LT A+(EXP)sf;   Expected Rating  

Class D;            LT BBB-(EXP)sf; Expected Rating  

Class E;            LT BB-(EXP)sf;  Expected Rating  

Class F;            LT B-(EXP)sf;   Expected Rating  

Subordinated Notes; LT NR(EXP)sf;   Expected Rating  

Class X;            LT AAA(EXP)sf;  Expected Rating

KEY RATING DRIVERS

'B+/B' Portfolio Credit Quality

Fitch places the average credit quality of obligors in the 'B+/B'
range. The Fitch-weighted average rating factor (WARF) of the
identified portfolio is 31.06.

High Recovery Expectations

At least 90% of the portfolio comprises senior secured obligations.
Recovery prospects for these assets are typically more favourable
than for second-lien, unsecured and mezzanine assets. The
Fitch-weighted average recovery rating (WARR) of the identified
portfolio is 68.3%.

Diversified Asset Portfolio

The covenanted maximum exposure to the top 10 obligors for
assigning the expected ratings is 20% of the portfolio balance. The
transaction also includes limits on maximum industry exposure based
on Fitch's industry definitions. The maximum exposure to the three
largest (Fitch-defined) industries in the portfolio is covenanted
at 40%. These covenants ensure that the asset portfolio will not be
exposed to excessive concentration.

Portfolio Management

The transaction features a 4.5-year reinvestment period and
includes reinvestment criteria similar to other European
transactions. Fitch's analysis is based on a stressed-case
portfolio with the aim of testing the robustness of the transaction
structure against its covenants and portfolio guidelines.

Cash Flow Analysis

Fitch used a customised proprietary cash flow model to replicate
the principal and interest waterfalls and the various structural
features of the transaction, and to assess their effectiveness,
including the structural protection provided by excess spread
diverted through the par value and interest coverage tests.



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R U S S I A
===========

MIN BANK: Bank of Russia Acquires 99.9%+ of Ordinary Shares
-----------------------------------------------------------
The Bank of Russia has become the owner of more than 99.9% of
ordinary shares of Public Joint-stock Company Moscow Industrial
Bank (Reg. No. 912) (hereinafter, PJSC MIN BANK, or the Bank).

These measures were taken as part of the plan of the Bank of
Russia's participation in bankruptcy prevention measures for PJSC
MIN BANK that provide for the Bank of Russia to acquire the
additional issue of the Bank's ordinary shares worth RUR128.7
billion.



MOSCOW UNITED ELECTRIC: S&P Raises ICR to BB+, Outlook Stable
-------------------------------------------------------------
S&P Global Ratings raised to 'BB+' from 'BB' its long-term issuer
credit ratings on Russian electricity distribution companies
Interregional Distribution Grid Company of Centre (IDGC of Centre)
and Moscow United Electric Grid Co. (MOESK).

S&P said, "The upgrades of IDGC of Centre and MOESK reflect our
expectations that the companies will continue their solid operating
performance, supported by annual electricity distribution tariff
indexation and cost efficiency measures. In particular, we forecast
FFO to debt sustainably exceeding 25% and FFO cash interest
coverage remaining above 4x for both companies over the next two
years.

"In our base case, we also expect no significant capex hikes and
moderate dividend payouts, leading to no materially negative
discretionary cash flow (DCF) and no material increase in debt for
both companies. In 2018, Rosseti announced a large program to
digitalize electricity grids, which was approved by the Russian
government. We now understand that IDGC of Centre and MOESK will
participate in the program, but we do not expect a hike in
investments. Both companies will fit digitalization projects into
their existing capex plans, partially replacing old technologies.
Thus, we believe that IDGC of Centre and MOESK will generate
neutral to positive DCF in the next two to three years.

"In light of these considerations, we have revised our stand-alone
credit profile (SACP) on IDGC of Centre and MOESK to 'bb' from
'bb-'.

"We continue to see IDGC of Centre and MOESK as moderately
strategic subsidiaries in the Rosseti group, reflecting our
expectation of support from their parent, which is a
government-controlled electricity transmission and distribution
holding. Our ratings on IDGC of Centre and MOESK continue to
include one notch of uplift for our expectation of group support."

OUTLOOK: IDGC of Centre

S&P said, "The stable outlook on IDGC of Centre reflects our
expectation of stable operating performance in the coming 12 months
and adequate liquidity. We expect that the supportive interest rate
environment will enable the company to maintain FFO to debt above
25% and maintain FFO its cash interest coverage above 4x.

"At the same time, we expect the company will generate neutral DCF
due to manageable capex and moderate dividends and will not
undertake material mergers or acquisitions, such as the merger with
sister entity IDGC of Centre and Volga Region, despite existing
overlaps in the companies' management teams.

"The stable outlook also incorporates our projection of no
significant weakening in Rosseti's credit quality or its policy of
support for subsidiaries.

"We currently see limited possibilities of an upgrade. An upgrade
would require improvement of the SACP by two notches to 'bbb-', for
example as a result of significant regulatory improvements, much
stronger operating performance, or a very material debt
reduction."

Improvement of the SACP to 'bb+' would not be sufficient to justify
an upgrade. In this scenario, an upgrade would also be contingent
on the upgrade of both the parent company Rosseti and the
sovereign.

S&P said, "We could downgrade IDGC of Centre if we see a weaker
operating performance, liquidity issues, increased interest rates,
or capex or dividends increasing significantly above our
expectations, resulting in FFO to debt sustainably below 25%, FFO
cash interest coverage above 4x, and strongly negative DCF. We
could also lower the rating on IDGC of Centre if we were to lower
the rating on the sovereign or the parent."

OUTLOOK: MOESK

S&P said, "The stable outlook on MOESK reflects our expectation
that the company will maintain its credit measures in the coming 12
months, including FFO to debt above 25% and FFO cash interest
coverage above 4x.

"We also expect that the company's financial policy regarding
dividends and liquidity management will remain prudent--as we
expect MOESK to proactively address its maturities coming due in
December 2019. The stable outlook also assumes no sharp increase in
investment plans and no weakening in Rosseti's credit quality or
its policy of support for subsidiaries.

"Upgrade scenarios are unlikely at this stage. We could upgrade if
we revised the SACP by two notches to 'bbb-', for example as a
result of significant regulatory improvements, much stronger
operating performance, or a material debt reduction."

An improvement of MOESK's SACP to 'bb+' would not be sufficient for
an upgrade. An upgrade of the parent company Rosseti and sovereign
would be needed for an upgrade at this SACP level.

A negative rating action could result from a material weakening of
the company's operating performance or liquidity or from an
unexpected hike in capex or dividends, resulting in FFO to debt
sustainably below 25%, FFO cash interest coverage less than 4x, and
strongly negative DCF.

S&P could also lower the rating on MOESK if it was to lower the
rating on the sovereign or the parent.

VSK INSURANCCE: Fitch Upgrades IFS Rating to BB, Outlook Stable
---------------------------------------------------------------
Fitch Ratings upgraded Russia-based VSK Insurance Joint Stock
Company's Insurer Financial Strength Rating to 'BB' from 'BB-'. The
Outlook is Stable.

KEY RATING DRIVERS

The upgrade reflects Fitch's view of the insurer's regular business
portfolio as being significantly healthier and its risk-adjusted
capital position as being less vulnerable after the transfer of all
yet unexpired surety risks - to be completed in August 2019. The
ratings reflect VSK's strong operating profitability, favourable
business profile and its yet relatively weak capital strength.

MAIN DRIVERS

Based on Fitch's Prism factor-based model, VSK's risk-adjusted
capital position remained below 'Somewhat Weak' based on end-2018
results, although slightly stronger than the 2017 score. The
insurer generated significant profit in the last two years, but it
was only sufficient to maintain the capital strength in the context
of rapidly growing business volumes and dividend outflows (RUB1
billion in 2017 and RUB1.8 billion in 2019). The available capital
is also weakened by a large goodwill burden. By regulatory measure
VSK maintains a comfortable capital position with a solvency ratio
at 201% at end-March 2019.

The insurer's financial leverage ratio fell to 12% in 2018 from 17%
in 2017 due to 30% equity growth and the repayment ofRUB0.6 billion
out of RUB4.1billion senior debt. The fixed-charge coverage ratio
stood at a very strong 21x in 2018.

In its 2018 IFRS-based consolidated financial results, VSK reported
a very strong net profit of RUB8 billion and 34% return on equity
(ROE; 2017: RUB6 billion and 34%, respectively). Profit was
supported by a strong non-life underwriting result, ongoing good
investment performance and RUB1.3 billion FX gains. The insurer's
non-life underwriting profit grew to RUB5.2 billion in 2018 from
RUB4.9 billion in 2017. The combined ratio stood at 92% in 2018, in
line with 2017's, and better than the five-year average of 98% in
2013-2017.

The ultimate amount of surety claims related to the Urban Group
case was modest at RUB1 billion versus the initially reserved
RUB9.8 billion in the regulatory accounts in July 2018. In
accordance with the new regulation signed in June 2019, VSK will
need to transfer liabilities and assets under yet effective surety
policies covering risks in the residential construction with
no-claims history to a special government-owned fund. Based on the
insurer's preliminary assessment, the transfer of the surety
liabilities and the cancellation of the relevant outwards
reinsurance contracts will result in a modest RUB0.1 billion
underwriting loss for this particular line of business for VSK in
2019.

The diversification of VSK's non-life business mix moderately
improved in 2018 after the weight of the motor third-party
liability (MTPL) insurance in the insurer's gross written premiums
fell to 24% in 2018 from 34% in 2017 and 39% in 2016. The 12%
growth of non-life gross written premiums to RUB74 billion in 2018
was therefore mainly supported by a surge in accident risks written
through the bancassurance channel and organic growth in the motor
damage insurance, where VSK has managed to keep a balance between
commercial fleets and individual cars.

The motor damage line continued to be the key contributor to the
underwriting result in 2018 and a scaled-down MTPL produced the
second-largest positive contribution to the underwriting result due
to a significant reserve release. The insurer's MTPL loss ratio
improved to 67% in 2018 from 77% in 2017.

However, in 4Q18 VSK saw perceptible deterioration in the MTPL
average claim. The latter effect impacted many segment underwriters
and had not been accurately forecasted in insurers' pricing policy.
VSK continued to cut back on MTPL in 1Q19, but expects to resume
growth in the segment later in 2019 after more underwriters adjust
their pricing policy to the changed claims experience and as tariff
competition eases.

VSK's run-off analysis showed moderate negative development for the
MTPL loss reserves set at end-2018. Fitch believes that the reserve
strengthening for prior periods might put some pressure on VSK's
underwriting result in 2019. The latter might be also impacted by
an 8% decline in net earned premiums in 1Q19 from 1Q18, resulting
mainly from the motor damage and MTPL lines, and which was deeper
than the contraction in the relevant lines in the domestic sector
overall.

Fitch believes that VSK has a favourable business profile in the
domestic non-life insurance sector. The company's non-life
portfolio is adequately diversified in many aspects, including
business mix, presence in the retail and commercial segments and
distribution pattern. VSK's non-life premiums have been growing
somewhat faster than the Russian non-life insurance sector. The
insurer has a large branch network and a well-known brand name.

On life insurance, VSK also holds a moderate market position, but
its business mix is concentrated as is the case for the whole
Russian life insurance sector. VSK portfolio is mainly focused on
hybrid products with 93% of premiums written through banks in 2018.
As the Russian Central Bank has tightened the sales regulation for
the life hybrid products in 2019, these products have already
started to experience a sharp decline in new premiums and low
renewal rates. VSK's life subsidiary recorded a 34% yoy decline in
written premiums in 1Q19. The surrender risk is low as hybrid
products were designed as single-premium contracts with high
penalties for premature policy termination.

Fitch views the credit and liquidity quality of VSK's investment
portfolio as good from a domestic perspective. However, some
concentrated equity holdings in related-party companies and a
notable exposure to non-investment-grade securities (mainly
domestic bonds) result in a high risky assets-to-equity ratio.



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T U R K E Y
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ARCELIK AS: Fitch Affirms BB+ LT IDRs, Outlook Negative
-------------------------------------------------------
Fitch Ratings has affirmed Turkish consumer goods manufacturer
Arcelik A.S.'s Long-Term Foreign and Local Currency Issuer Default
Ratings at 'BB+'. The Outlook is Negative.

The affirmation follows the downgrade of Turkey's sovereign
Long-Term IDR to 'BB-' from 'BB 'on July 12, 2019 and the Country
Ceiling to 'BB-' from 'BB+'. The ratings of Arcelik are above the
'BB-'Turkish Country Ceiling, reflecting Fitch's expectations that
Arcelik has sufficient structural enhancements that would mitigate
transfer and convertibility risks.

Nevertheless, the Negative Outlook reflects Fitch's expectation of
prolonged stress on cash generation compared with Arcelik
management's expectations, driven by higher financing costs, plus
increased inventory and receivable collection days in the domestic
market. Significant volatility in the Turkish economy is
compounding uncertainty over free cash flow (FCF) forecasts.
However, Fitch expects Arcelik will maintain funds from operations
(FFO) adjusted (for receivables) net leverage below 2.5x in the
medium term, which is more in line with the 'BBB' rating median.

KEY RATING DRIVERS

FCF Generation Remains Weak: FCF generation continues to be under
stress, driven by increased working capital needs, higher capex,
and sharp increases in interest rates in Turkey. Fitch believes
that current FCF generation is not commensurate with the current
ratings, and prolonged stress on cash generation could further
increase leverage. However, Fitch expects FCF generation to turn
positive in 2020, as the expansion programme completes and
inventory levels in factories normalise.

Leverage Still Commensurate with Ratings: Despite significant
volatility in working capital needs, sharp movements in currency
and interest rates, Fitch forecasts FFO adjusted (for receivables)
net leverage to average 2x until 2020, remaining below its negative
rating sensitivity, which is comfortably in line with the 'BBB'
rating median of 2.5x

FCF Generation Remains Weak: Fitch forecasts profitability to
remain at current stressed levels until 2020, along with a negative
FCF margin averaging 3% for the next 24 months. However, Fitch
expects Arcelik to maintain some headroom under its current
leverage sensitivity. Although leverage is currently in line with
the ratings, uncertainty on the domestic Turkish economy has
increased materially, and sharp FX and interest rate movements
could lead to swift and sharp increases in leverage and,
consequently, a downgrade.

Immaterial Currency Impact on Profitability: Compared with Turkish
peers, sharp FX movements in 2018 have had a lower negative impact
on Arcelik's profitability. With 32% of revenue coming from the
domestic market, Arcelik remains a significant Turkish exporter,
with healthy hedging policies in place for hard currency movements.
However, along with current business expansion, Arcelik is still
highly exposed to emerging markets, such as Pakistan and Egypt
where hedging policies are very limited, which is stressing
profitability. Its current business expansion will increase this
exposure.

Fitch believes that sharp movements in other emerging market
currencies could marginally lower profitability in the next 12-18
months. However, Fitch still expects the EBIT margin to remain
around 7%, which is in line with current ratings and slightly below
its 'BBB' rating median of 8%.

Revenue Growth Remains Strong: Fitch expects Arcelik to maintain
double-digit revenue growth throughout its four-year forecast
horizon, supported by an expanding international presence. Fitch
expects a slowdown in domestic volumes as a result of challenging
macroeconomic conditions in Turkey and a high revenue base in
2018.On the international front, Fitch expects the expanding
business footprint, increased overseas market shares and the recent
Turkish lira devaluation to drive revenue growth.

Growing Market Shares: Arcelik has generated strong international
revenue growth in the past few years, by attracting more
price-conscious consumers in western Europe and by capitalising on
its strong marketing and distribution network, which has allowed it
to become one of the top three white goods manufacturers in Europe.
Fitch believes Arcelik will be able to further increase its market
shares, through its low-cost manufacturing abilities, the Turkish
lira depreciation, strong R&D and a solid product line. Fitch
expects international markets to be the main growth driver in the
medium term, as Arcelik has targeted markets where appliance
penetration rates are lower than the rest of the world.

Emerging Market Exposure: Fitch believes recent
investment/expansion plans in the ASEAN region is a positive step
towards reducing Arcelik's exposure to the Turkish economy, which
has constrained the ratings. Arcelik has become a more
geographically diverse white goods manufacturer in the past 10
years, by gaining solid market shares in Europe and expanding into
new emerging markets. Domestic revenue share declined to 32% in
1Q19 from 41% in 1H17, and 50% in 2008. Nevertheless, Arcelik's
emerging market presence is high compared with that of peers such
as, Whirlpool and Electrolux, and remains a credit risk.

Financial Services Adjustments: Arcelik's reported leverage is
affected by higher-than-average working capital needs, as a
significant portion of durable goods are sold on credit in Turkey.
While this is partly financed by Arcelik, the dealer credit risk is
covered by banks' letters of credit and mortgages. Fitch assumes
approximately 120 days of domestic receivables come from this
business practice in Turkey and adjusts debt accordingly to reflect
a more accurate peer comparison. Based on its financial services
criteria, Fitch applies a 3x debt/equity ratio for these
receivables.

DERIVATION SUMMARY

Arcelik has strong market shares in Turkey and Europe, which drive
stable EBITDA (around 10%) and FFO margins (around 8%). These
financial metrics are commensurate with the 'BBB' rating median in
its capital goods navigator, and are in line with that of
higher-rated peers like Whirlpool Corp. (BBB/Stable) and Panasonic
Corporation (BBB/Negative). However, these strengths are offset by
weak FCF generation, driven by intense capex in new markets, and
structurally high working capital needs. Despite the current
investment phase, Arcelik's leverage metric adjusted for financial
services remains below its negative rating sensitivity and conforms
to an 'A' rating median in its capital goods navigator.

The technological content and R&D capabilities of Arcelik are
broadly in line with that of Whirlpool, Electrolux and the broad
white goods industry. However, Arcelik's revenue from emerging
markets is much higher than higher-rated white goods
manufacturers'. Although Arcelik is broadening its geographical
diversification -away from Turkey - it remains vulnerable to
macro-economic, political and FX risks in emerging markets.

KEY ASSUMPTIONS

Fitch's Key Assumptions within its Rating Case for the Issuer

  - Double-digit revenue growth in European markets and mid-to-low
singe-digit revenue declines in Turkey for 2019

  - Stress on profitability to continue for the next 12-18 months

  - Sizeable capex outlay in the medium term in line with expansion
plans

  - Effective interest rates for 2019 higher than four-year
historical averages

Dividend pay-out to remain at historical averages despite stressed
cash flow generation

  - Financial services adjustment assumes 120 days of domestic
receivables

EMLAK KONUT: Fitch Downgrades LT IDR to BB-, Outlook Negative
-------------------------------------------------------------
Fitch Ratings has downgraded the Long-Term Issuer Default Rating
and Long-Term Local-Currency IDR of Turkish residential developer
Emlak Konut Gayrimenkul Yatirim Ortakligi A.S. to 'BB-' from 'BB'.
The Outlooks are Negative.

The downgrade of the company's long-term ratings follows the
downgrade of the Turkey sovereign Long-Term IDR to 'BB-' from 'BB'
on July 12, 2019 as well as the lowering of the Country Ceiling to
'BB-' from 'BB+'. The ratings reflects Emlak Konut's unique
revenue-sharing model, which generates guaranteed income and a
share of upside gains, and passes nearly all design, building,
financing and marketing risks to developers.

Emlak Konut holds a competitive advantage owing to its close links
to its controlling shareholder, Turkey's Housing Development
Administration. Other credit strengths include a significant land
bank, largely in Istanbul, and sound financials. The company is
exposed to potential volatile housing demand and prices, as well as
regulatory and political risks.

KEY RATING DRIVERS

Deteriorating Operating Environment: On July 12, 2019, Fitch
downgraded Turkey's Long-Term Foreign-Currency IDR to
'BB-'/Negative owing to a weakening Turkish economy, political
backdrop, deterioration in institutional independence and economic
policy coherence and credibility. As a result, Fitch now expects
greater currency depreciation, which could add to stresses on
corporate and bank balance sheets and impair economic rebalancing
and stabilisation. This led to the subsequent downgrade of Emlak
Konut's IDR, reflecting the company's direct and indirect links to
TOKI and exposure to the difficult operating environment in
Turkey.

Housing Market on Downward Trajectory: The Turkish housing price
index has been on a downward trajectory since 2018, with Istanbul
leading the fall in real estate prices. Fitch forecasts further
volatility in real estate prices on volatile demand. Guaranteed
revenue under the RSM protects Emlak Konut in the near term and the
government has shown a willingness to support the sector through
various incentives and tax relief. The company has used incentives,
such as instalments and discounts, to entice buyers. Nevertheless,
a long-term decline in housing values will depress long-term
returns and affect the company's ability to attract contractors to
projects.

Relations with TOKI Is Paramount: Emlak Konut holds an exclusive
priority agreement with TOKI, which allows it to buy land from TOKI
at independently appraised values without tender. Emlak Konut's
quick access to large, attractive parcels of land provides the
company with a significant advantage over other developers,
particularly in Istanbul where housing demand is high.
Deterioration in relations with TOKI would affect company
operations, but the mutually beneficial arrangement minimises this
risk. Emlak Konut's access to valuable land sustains the company's
business model, while the resulting dividends help TOKI fund its
own development programme.

Continued Land Bank Optimisation: Emlak Konut had a land bank
covering 3.39 million square metres valued at nearly TRY4.3 billion
as at end-1Q19, largely in important areas of Istanbul where demand
is higher than other major cities. The land bank ensures the
company will continue to be able to develop projects to sustain
operations. The favourable locations mean contractors, as well as
consumers, are likely to be attracted to its projects.

RSM Reduces Sales Volatility: In 2018, Emlak Konut tendered more
than TRY1.08 billion in projects (2017: TRY1.09 billion), securing
a tender multiplier of 1.74x (2017: 2.08x). The tender schedule for
1Q19 amounts to TRY948 million, with an estimated multiplier of
2.04x on average. Emlak Konut develops most of its housing projects
through its low-risk, unique RSM that provides strong revenue
visibility and protects the company from short-term market
volatility. Under the RSM, virtually all development risk is passed
to contractors, which must guarantee Emlak Konut a minimum revenue
amount and a share of upside gains. Emlak Konut supervises the
project, as well as collects and distributes all project cash flow,
including the contractor's revenue share, at defined milestones.

Pressured Profitability Margins: Fitch expects projects under RSM
typically to generate more than half of Emlak Konut's revenue.
However, the company expects the share of a few turnkey projects to
increase in the next two years as Emlak Konut's plan to develop
certain projects outside Istanbul, which will in turn generate
lower contribution to revenue from RSM, altering EBITDA margins. In
2018, the EBITDA margin decreased to 36.95% from 52% in 2017 on
projects' lower profitability. Under the turnkey model, the
company, similar to most real estate companies, only passes
building risk to contractors. Emlak Konut also sometimes uses this
approach to stimulate interest in developing areas, which allows it
to use the RSM for future projects.

Anticipated Rising Leverage: Emlak Konut's total
debt-to-Fitch-adjusted EBITDA in 2018 doubled over the past two
years to 2.3x, as anticipated by Fitch, as the company raises
short-term and mid-term debt to finance land acquisitions from
TOKI. Emlak Konut's leverage is still commensurate with rated peers
in the low 'BB' category.

DERIVATION SUMMARY

Emlak Konut's operations differ from peers. The RSM continues to
generate more than half of Fitch-calculated EBITDA in 2018,
allowing Emlak Konut to pass nearly all development risks to
private contractors. Emlak Konut only contributes land and is
responsible for project oversight and controlling project cash
flow; it does not fund any building costs. In exchange for land,
the contractor guarantees a minimum amount of revenue, regardless
of the success of the project, as well as a defined share of any
upside gains.

Emlak Konut has strong business and credit profiles, compared with
EMEA peers, such as Emirates REIT (BB/Stable) and Ronesans
Gayrimenkul Yatirim A.S. (RGY; BB-/Negative). Fitch expects
Emirates REIT's net debt/EBTIDA to slowly fall below 12.0x by 2020,
while Fitch forecasts RGY's net debt/EBITDA to fall to around 9.0x
by 2021. Emlak Konut had an anticipated increase in net leverage to
1.9x in 2018 compared with 0.7x in 2017.

The contractor must provide a down-payment (10% of the minimum
revenue) as well as a letter of guarantee (6% of Emlak Konut's
guaranteed revenue), mitigating the risk of a contractor failure.
In addition, the company has mechanisms to filter out weak
contractors and to ensure there is no concentration on any single
builder. Under the RSM, operational costs are low and the company
is able to develop a high number of projects simultaneously.
Margins, however, are comparatively low.

Despite the RSM, volatility in the housing market and interest rate
fluctuations are a risk. To grow, the company must continue to
attract contractors for their projects, but interest is likely to
fall if the market weakens. Housing prices in Turkey have been
increasing steadily for many years - particularly in Istanbul -
raising the risk of a housing market collapse. Although a number of
factors suggest this is unlikely, a significant drop in the market
would affect revenue generation. Guaranteed minimum revenue would,
nonetheless, cushion this in the near term.

The company's relationship with TOKI is unique. While a competitive
advantage, material changes in the relationship with TOKI would
significantly alter Emlak Konut's business model and competitive
position. Nevertheless, the company could transform into a typical
home developer using its turnkey model and exploiting its land
bank.

KEY ASSUMPTIONS

Fitch's Key Assumptions Within Its Rating Case for the Issuer

  - EBITDA margin above 30% supported by RSM with low single-digit
revenue growth

  - Continued negative free cash flow (FCF)
  
  - Dividends averaging 50% of net income over the forecast period

GLOBAL LIMAN: Fitch Affirms BB- $250M Sr. Notes Rating, Outlook Neg
-------------------------------------------------------------------
Fitch Ratings has revised the Outlook on Global Liman Isletmeleri
A.S.'s USD250 million senior unsecured notes due 2021 to Negative
from Stable while affirming the notes rating at 'BB-'.

The revision of GLI's Outlook follows the downgrade of Turkey's
sovereign credit ratings and Country Ceiling to 'BB-' with a
Negative Outlook . In its view, Turkey's Country Ceiling will
continue to cap GLI's notes rating, as about 60% of GLI's EBITDA is
generated in Turkey and a substantial proportion of consolidated
group cash is held at GLI and its Turkish subsidiaries, as well as
at Turkish banks

Fitch continues to rate GLI's debt based on the consolidated credit
profile of its parent company, Global Ports Holding (GPH). GPH
recently announced a strategic review of its portfolio of
commercial and cruise ports, including the potential sale of
certain assets as well as strategic investments and partnerships.
Fitch will monitor this possible refocus of the business and any
impact it may have on the group's credit profile.

RATING SENSITIVITIES

Future Developments That May, Individually or Collectively, Lead to
Negative Rating Action:

  - Failure to prefund GPH's debt 24 months in advance of its
maturity

  - Fitch-adjusted leverage consistently above 3.5x under the Fitch
rating case

  - Negative rating action on Turkey's Country Ceiling

Future Developments That May, Individually or Collectively, Lead to
Positive Rating Action:

  - A positive rating action is unlikely with GLI's current
portfolio as Turkey's Country Ceiling is 'BB-' and Turkey's Issuer
Default Ratings are currently on Negative Outlook

MERSIN ULUSLARARASI: Fitch Cuts $450M Sr. Unsec. Debt Rating to BB-
-------------------------------------------------------------------
Fitch Ratings has downgraded Mersin Uluslararasi Liman
Isletmeciligi A.S.'s USD450 million senior unsecured debt rating to
'BB-' from 'BB+'. The Outlook is Negative.

The rating action follows the downgrade of Turkey's sovereign
ratings and Country Ceiling. In its view, the Country Ceiling will
continue to cap MIP's rating, as its operating cash flows are fully
generated in Turkey

KEY RATING DRIVERS

The downgrade of MIP is related to the sovereign action. Fitch has
not carried out a full review at this time.

RATING SENSITIVITIES

Future Developments That May, Individually or Collectively, Lead to
Negative Rating Action:

  - Gross debt/EBITDA above 3.0x during 2019-2020;

  - Negative rating action on Turkey's IDR leading to a revision of
the Country Ceiling, which will continue to cap MIP's rating;

  - Failure to refinance its single bullet maturity six months in
advance of its maturity.

Positive rating action is unlikely as Turkey's Country Ceiling is
'BB-'.

ORDU YARDIMLASMA: Fitch Downgrades LT IDR to BB, Outlook Negative
-----------------------------------------------------------------
Fitch Ratings has downgraded the Long-Term Issuer Default Rating
(IDR) rating of Ordu Yardimlasma Kurumu to 'BB' from 'BB+'. The
Outlook on the Long-Term IDR is Negative. The downgrade of the
company's ratings follows the downgrade of the Turkey sovereign's
Long-Term IDR to 'BB-' from 'BB' on July 12, 2019, as well as the
lowering of the Country Ceiling to 'BB-' from 'BB+'. The Outlook is
Negative.

Oyak's ratings are nonetheless above the 'BB-' Turkish Country
Ceiling, reflecting Fitch's expectations that Oyak has sufficient
structural enhancements that would mitigate transfer and
convertibility risks.

KEY RATING DRIVERS

Blended Income Stream 'BB-' Rating: Based on its analysis of the
three subsidiaries that generated 91% of Oyak's dividend income at
end-2018, Fitch calculates a 24% probability of default for Oyak,
which maps to a 'BB-' in its rating factor table. Fitch then
applies a single-notch discount to arrive at a Blended Income
Stream Rating of 'B+' to reflect the subordinated nature of
dividend flows versus taxes and debt.

Fitch has not applied an additional notch uplift to the Blended
Income Stream Rating for diversification, as dividends are mainly
dependent on Erdemir and Oyak Cement, which had dividend weightings
of 69% and 13%, respectively, at end-2018. Fitch has, however,
applied a two-notch uplift to the 'B+' income stream rating,
supported by factors, such as dividend control, very strong
loan-to-value (LTV) and conservative leverage metrics.

Strong LTV: Its stressed LTV ratio for Oyak is significantly below
25%, which is in line with the 'A' rating category under its
methodology, and is in line with Oyak's higher-rated peers. When
calculating Oyak's LTV ratio, Fitch takes into account debt in
SPVs, such as ATAER, BIREN and cement JVs, despite the absence of
parent-company guarantees and cross-defaults. Although Fitch
believes that Turkish asset values could fluctuate, Oyak has ample
rating headroom to withstand economic shocks in the domestic
economy and maintain a solid LTV ratio in line with high
investment-grade ratings.

Conservative Leverage: Fitch views Oyak's financial structure as
being in line with an 'A' rating category, despite its three-year
dividend forecasts being more conservative than the management's.
Fitch expects dividend inflows from Erdemir to slow in 2020, driven
by expansion plans at the subsidiary level, and as stressed
domestic interest rates considerably.

Volatile Dividends: Fitch views Oyak's dividend volatility at weak
investment-grade level, due mainly to fluctuations in upstream cash
flow from equity participations. The volatility arises not from
operational shortfalls or heavy investments in subsidiaries, but
from reporting currency of subsidiaries being in US dollar.
Although Oyak has almost ultimate control on dividend flow, as
witnessed by changes in equity flow, the lack of diversification of
equity investments could drive volatility in cash flow.

Liquid Assets: Fitch views Oyak's asset liquidity as being
consistent with the 'BBB' rating category, with 57.4% of the
group's equity participation portfolio value coming from publicly
listed companies. Oyak's asset portfolio is more liquid than other
Turkish holding companies' and international peers' as it can
easily be converted into cash to serve pension payments.

Conservative Financial Policies: Fitch believes that Oyak's record
of abiding by the group's internal financial policies, which are
strict owing to the group's status as a quasi-pension fund,
compares well to high investment-grade peers'. However, Oyak
prefers to invest in manufacturing, infrastructure, energy and
heavy industries, avoiding industries that directly serve
end-customers. Although this strategy has been successful so far,
such businesses are more cyclical and volatile than high
investment-grade peers, which typically invest in the utilities and
consumer goods sectors.

Payments to Members: Fitch views payments to pension members as
quasi-dividend payments being ultimately subordinated to senior
unsecured financial debt obligations of the group. This is driven
by its belief that the fund has deferral mechanisms in place for
liquidity crunches and that any withdrawal requests should first be
passed through the General Assembly Therefore Fitch does not deem
these payments as part of holding company funds from operations
(FFO), and debt coverage calculations.

DERIVATION SUMMARY

Oyak's business profile as a supplemental pension fund for the
military is unique among Fitch-rated holding companies. While there
are no publicly rated direct peers, it shares similarities with
Turkish corporates, such as Sabanci Holding and Koc Holding AS and
international peers, such as Exor N.V. and Criteria.

Oyak is one of Turkey's largest holding companies with solid market
positions in steel, autos and cement. Oyak's size and
diversification are broadly in line with that of Koc Holding and
Sabanci, but the group has less end-market diversification than
higher-rated peers, such as Criteria Caixa S.A. (BBB/Positive) and
Exor S.P.A. OYAK is exposed to Turkey, despite diversifying its
asset base into financial assets and real estate to smoothen cash
flow. This is partially mitigated by Oyak's leverage metrics and
LTV that are significantly better than peers' and in line with the
'A' rating median, which is a key rating strength.

KEY ASSUMPTIONS

Fitch's Key Assumptions Within Its Rating Case for the Issuer

   - Lower dividend income in the medium term, driven by increased
capex needs at subsidiaries.

- Opex in line with historical averages.

  - Increasing interest rates.

  - Broadly stable-to-slightly increasing payments to pension
members.

- Limited portfolio activity; no sizeable M&A

RONESANS GAYRIMENKUL: Fitch Lowers LT IDR to BB-, Outlook Negative
------------------------------------------------------------------
Fitch Ratings has downgraded Turkish property company Ronesans
Gayrimenkul Yatirim A.S.'s Long-Term Issuer Default Rating and
senior unsecured rating to 'BB-' from 'BB'. The Outlook is
Negative. RGY's ratings are now constrained by Turkey's Country
Ceiling of 'BB-'.

This rating action follows the downgrade of the Turkish Sovereign
rating to 'BB-' with Outlook Negative and the Country Ceiling to
'BB-'. The rating constraint by the sovereign's Country Ceiling
reflects the concentration of all of RGY's revenue in Turkey. RGY's
Negative Outlook reflects that of the Turkish sovereign rating and
its expectation that further negative action taken on the Country
Ceiling would lead to a further negative rating action for RGY.

KEY RATING DRIVERS

Volatile Operating Environment: RGY's assets are entirely located
in Turkey, which has been experiencing severe economic and currency
instability. Consequently, retail markets have weakened, pressuring
RGY tenants' ability to meet rental payments. RGY has increased
incentives to help weaker tenants maintain their financial
viability, but this has affected RGY's financial performance. 2019
is likely to remain challenging for the company.

Decree 32 Eliminates Currency Hedge: In response to the Turkish
lira's sharp depreciation, in October 2018 the government
introduced Decree 32, which bans domestic companies from buying,
selling or leasing assets or services in foreign currencies and
requires companies to change such contracts into lira. The decree
is expected to expire in October 2020. The statute forced RGY,
which previously denominated its leases in euros, to convert all
existing leases at a rate of 5.43 lira to the euro. Turkish CPI
will be applied annually to existing leases.

While the decree has provided some financial relief to tenants, RGY
is now fully exposed to the lira as the company's debt is wholly
euro- or US dollar-denominated. The company has hedged 60% of
rental income in 2019 at a EUR/TRY rate of 6.95, but this will only
partly cover near-term interest and debt amortisations. There is
refinancing risk given current market conditions. However, RGY does
not have any material maturities until 2021, which is after the
decree is scheduled to end. Historically, RGY has demonstrated good
access to international markets.

Sound Retail Market Fundamentals: The structure of the Turkish
retail market remains positive for its participants. With a growing
population of more than 80 million, Turkey is one of the largest
retail markets in EMEA. The population is young, with nearly
one-third aged between 20 and 39, and internal immigration has
increased the urban population to more than 75%. These attributes
benefit RGY, whose portfolio of destination malls is located in the
nation's largest cities, including Istanbul, which accounts for
more than 50% of its asset value. E-commerce penetration is only
3.5%, a rate that will likely increase, but underdeveloped
logistics infrastructure will probably slow the pace of growth.

Slow Deleveraging: RGY's debt and interest have increased in lira
terms owing to currency depreciation. Net debt/EBITDA at end-2018
was around 11x, which is high for the rating. Fitch expects the
economy and lira to remain volatile in 2019, but to begin recovery
in 2020. This should spur rental growth and accordingly help reduce
leverage. Fitch forecasts net debt/EBITDA to fall to 10.5x by
end-2019, due mainly to increased EBITDA from new developments and
acquisitions, and below 9.0x by 2021.

Operational Resilience: Retail occupancy remained healthy at 94.7%
in 2018 (2017: 96.6%), supported by an increase in tenant
incentives. However, this has meant that like-for-like net
operating income fell 6.9% in 2018. Despite higher incentives, the
occupancy cost ratio increased to 15.1% in 2018 (2017: 12.7%). RGY
expects to recover some lost rental income through greater use of
turnover leases, which will boost rents as tenant sales grow.

Concentrated Asset Base: RGY's property portfolio consists of 13
yielding assets with a leasable area of 700,000 sq. m., more than
90% of which is retail, the remainder being offices. At end-2018,
the value of these assets was around EUR2 billion (RGY's share).
Asset concentration is high due to the small number of assets. The
portfolio's good quality and high level of connectivity to public
and private transport partly mitigates this risk. There is also no
over-reliance on any single key asset.

Diverse Tenant Mix: The diverse mix of domestic and international
tenants provides a varied offering of fashion, entertainment and
food and beverage outlets, which continue to perform relatively
well in a challenging environment. RGY's focus on destination
shopping centres in response to changing consumer behaviits has
meant that entertainment, food and beverage are increasingly
relevant. The top 10 tenants account for around 20% of rents, which
should improve as RGY widens its tenant pool.

Shareholder Agreement Limits Parent Influence: A shareholder
agreement between group holding company Ronesans Emlak Gelistirme
Holding and GIC provides sufficient ring-fencing between RGY and
its parent companies to allow Fitch to assess RGY on a standalone
basis. All major decisions, including dividends, require consent of
both key shareholders, and RGY benefits from separate financing,
with no cross-defaults or guarantees (except for the historical
inter-group guarantee) to the wider holding group.

DERIVATION SUMMARY

RGY's EUR2 billion portfolio is larger than Emirates REIT's
(BB/Stable) EUR0.8 billion portfolio, but smaller than Atrium
European Real Estate Limited's (BBB/Stable) EUR2.9 billion
portfolio. Similar to Emirates REIT's, all RGY's assets are in one
jurisdiction with high asset concentration with assets across the
largest cities of Turkey.

RGY operates wholly within Turkey, which has shown considerable
economic and political volatility compared with other EMEA
countries. Unlike eastern European REITs Globalworth Real Estate
Investments Limited (BBB-/Stable), NEPI Rockcastle (BBB/Stable) and
Atrium, all of which index their leases to euros to match their
capital structure, RGY is prohibited from doing so following a
government decree in October 2018. RGY's challenging operating
conditions and exposure to exchange rate risk differ from most
other rated EMEA real estate companies.

KEY ASSUMPTIONS

  - Rentals to fall in 2019, be flat in 2020 and to grow in
mid-single digits in 2021 and 2022

  - Net operating income margin to remain stable at around 85%

  - Capex of around TRY510 million from 2019-2022, nearly all of
which is for the Karsiyaka Hilltown development

  - Acquisition of final AGP JV in 2019

  - Portfolio values to decline 5% in 2019

TURKCELL ILETISIM: Fitch Lowers LT IDR to BB-, Outlook Negative
---------------------------------------------------------------
Fitch Ratings has downgraded Turkcell Iletisim Hizmetleri A.S
Long-Term Foreign Currency Issuer Default Rating and senior
unsecured rating to 'BB-' from 'BB+'. The Outlook on the IDR is
Negative.

The rating action follows the Turkish sovereign and Country Ceiling
downgrade on July 12, 2019. The downgrade reflects Turkcell's
exposure to a weakening Turkish economy as the country's leading
convergent telecom company.

The Negative Outlook reflects that on the sovereign and the likely
correlation of future downward rating action to further
deterioration of the sovereign - assuming that the Country Ceiling
will move in line with a further downgrade of the sovereign.

Tcell's ratings take into account the company's leading market
position in mobile and strong number two position in fixed line.
The country's young population, propensity to adopt digital
services and balanced market dynamics offer ongoing growth and
visible margins. Healthy cash flow generation, a measured financial
policy and an active approach to managing currency risk, provide
visibility over leverage and other metrics. The rating is
constrained by Turkey's Country Ceiling of 'BB-'.

KEY RATING DRIVERS

Turkey Downgrade Restricts Rating. The constraint on Tcell's rating
by Turkey's Country Ceiling reflects nearly 93% of Tcell's 2018
revenue being derived from Turkey. Its Negative Outlook at Tcell
reflects the Turkish sovereign rating Outlook and its expectation
that further negative action taken on the Country Ceiling would
lead to a further negative rating action for Tcell.

Well-Positioned in Growth Market: Tcell is Turkey's leading mobile
operator and second-largest fixed-line telco. A mobile subscriber
share of 41.6% at end-1Q19 positions it strongly ahead of closest
rival Vodafone at 31.1% and Turk Telekom (TT) at 27.3%. With a
fixed-line strategy selectively investing in fibre and an evolved
understanding of digital applications, Fitch expects Tcell to
continue to benefit from above-average market growth, stable
margins and strong cash flow generation. Operationally it is
well-positioned in a three-player mobile market and an economy,
which despite a weakened outlook, exhibits strong growth prospects
and a young population; the latter providing an addressable market
well-disposed to the innovative services Tcell has developed.
Revenue growth in 2018 continued to outpace inflation.

Manageable Leverage: Tcell has set a leverage target of net
debt/EBITDA up to 1.5x. Its reported leverage was 1.3x at end-1Q19;
its telecom-related leverage was 0.9x. At present its forecasts
estimate funds from operations (FFO) net leverage for Tcell's
telecom business to be in the region of 1.8x over its three-year
forecast horizon. This compares with its revised downgrade
sensitivity (at BB-) of above 3.7x.

Managed FX Risk: Debt is raised in mainly US dollar and euros but
also in Turkish lira; the former two hedged using derivative
instruments, which cover both interest and principal payments. A
49% post-hedging debt mix in local currency (1Q19) underlines a
prudent approach to currency risk, lira depreciation and the
potential of currency-driven leverage spikes.

Evolving Digital Strategy: Examples of Tcell's digital strategy
include music streaming service Fizy, mobile payments, digital
publishing and nascent search engine Yaani. Its strong average
revenue per user (ARPU) trends, positive shift in postpaid mix, low
churn rates and expanding profitability underpin Fitch's view that
Tcell's approach to data monetisation is more evolved than at many
leading operators in larger developed western markets. Such an
approach to evolving applications and ecosystems gives rise to
risks and potentially margin-dilutive revenue streams. Delivery of
three-year targets set in 2015, one year ahead of plan, nonetheless
confirm strong management execution.

Accounting-Driven Margin Expansion: Having met its previous EBITDA
margin target one year ahead of plan Tcell is now targeting a
margin of 37%-40% by 2020. At face value the target suggests
confidence in the business's ability to leverage efficiencies and
scale as revenue grows. Last year's adoption of IFRS15 (revenue and
related contract cost recognition) and IFRS16 (treatment of
operating leases) are though expected to account for most, if not
all, of planned margin gains. An evolving business model and
revenue mix introduces margin pressures but Fitch nonetheless
regards Tcell's track record as good and margin visibility
reasonably clear.

International Ambitions Curtailed: Tcell management has shifted its
stance on international ambitions. A strategy to expand its
Eurasian footprint; one plan being to buy out the majority stake in
its 41.5%-owned associate Fintur, has been reversed while the
disposal of its stake in Fintur to Telia Company AB completed.
Management is now intent on seeking to exploit their digital
capabilities, partnering with regional telcos, with the aim of
developing their own digital platforms on a white label basis.
Fitch views this approach as more limited in risk and therefore a
credit-positive, albeit offering more modest near- term
diversification.

Deconsolidating Consumer Finance Operations: Tcell's consumer
finance (CF) operations have grown rapidly since being established
in 2016. A separately capitalised and regulated business the CF
operations have been used to provide consumer financing of handsets
and have driven strong smartphone growth for Tcell. In line with
Fitch's criteria analytical adjustments for financial service
operations Fitch deconsolidates Tcell's CF operations in its
analysis of the company's core telecom operations. Key to the
development of high-speed data usage and the monetisation of
digital services Fitch nonetheless views the CF operations as an
important funding tool for Tcell's customers. Net debt / EBITDA for
the core telecoms business, excluding debt of the CF operations and
before FX hedging benefits, was a conservative 0.9x at end-1Q19.
Fitch intends to monitor leverage excluding the CF business.

DERIVATION SUMMARY

Tcell's ratings are positioned well relative to closest peer
Turkish incumbent, Turk Telekom. Turk Telecom has a similar
operating profile - although its strength stems from its incumbent
fixed operations - higher leverage (end-2018: funds from operations
(FFO)-adjusted net leverage of 2.1x) and greater FX risk associated
with its hard currency-denominated debt.

Both undertake active debt portfolio management using derivative
instruments. Turk Telekom is more vulnerable to a leverage spike in
the event of accelerated lira depreciation while its growth profile
is less strong than Tcell's given its strength in fixed telecom
services. This in turn provides a more limited ability to
deleverage organically.

Absent FX risk and associated sovereign pressures, Tcell has a
similar or stronger rating profile, both business and financial, to
that of similarly or higher-rated western European telecom peers
such as KPN (BBB/Stable) and Telefonica Deutschland Holding AG
(BBB/Stable). Tcell has stronger growth potential than these peers
even when adjusted for inflation, and has developed a broader
understanding of mobile-based digital services and data
monetisation. Tcell's ratings are constrained by the sovereign
Country Ceiling of 'BB-'. No parent/subsidiary or operating
environment aspects impact the rating.

KEY ASSUMPTIONS

Fitch's Key Assumptions within its Rating Case for the Issuer

  - Revenue growth in the low-to-mid-teens in 2019, slowing to
around 10% by 2021

  - EBITDA margins of around 34% across the three-year forecast
period. Any positive impact from the adoption in 2018 of IFRS15 and
IFRS16 was not included in its modelling

  - Capex at 22% of sales (excluding spectrum) in 2019, reflecting
high FX-based costs in capex, slowing to 20% by 2021

  - Fitch excludes debt and cash flows from the CF company,
assuming that debt in this entity is serviced by the underlying
cash flows of the CF business

  - Dividends of TRY1.9 billion in 2019 and stable thereafter

TURKIYE SIS EVE: Fitch Downgrades LT IDR to BB-, Outlook Negative
-----------------------------------------------------------------
Fitch Ratings has downgraded Turkiye Sis eve Cam Fabrikalari A.S.'s
Long-Term Issuer Default Rating and the senior unsecured ratings to
'BB-' from 'BB+'. The Outlook on the Long-Term IDR is Negative.

The downgrades follow the downgrade of Turkey's sovereign Long-Term
Foreign-Currency IDR to 'BB-' from 'BB' on July 12, 2019 and the
lowering of the Country Ceiling to 'BB-' from 'BB+'.

Sisecam's IDR reflects its solid business profile, which benefits
from strong market shares in the glass industry in its domestic
market and some markets in eastern Europe, diverse end-market
exposure and a strong financial profile. The latter is
characterised by high profitability and funds from operations (FFO)
metrics that are in line with the 'BBB' rating median in its
Building Materials Navigator. The Negative Outlook reflects that on
Turkey's Long-Term Foreign-Currency IDR.

KEY RATING DRIVERS

Improved Profitability: Sisecam's Fitch-adjusted EBITDA margins
reached 23% at end-2018, backed by solid contribution from the
chemicals segment and cost-cutting measures. This is despite
significant increases in energy prices in the domestic market and a
substantial downturn in the Turkish construction market.

Fitch believes that macroeconomic conditions will continue to
challenge profitability in 2019 and conservatively forecasts EBITDA
margins at around 22%. However, the FFO margin should remain above
16% in the medium term, despite lower profitability and increased
financial costs, which is commensurate with the 'BBB' rating median
in its Building Materials Navigator.

Negative FCF Expectations: Fitch projects that Sisecam's free cash
flow (FCF) margins will remain negative over the medium term, due
to higher capex needs and increasing interest rate costs. Fitch
believes that deleveraging will slow in the next three years,
driven by a new investment phase, although Fitch expects leverage
metrics to remain commensurate with the investment-grade median.
Fitch believes that the company's substantial expansionary capex
plans could be partially postponed in a severe economic downturn
and the dividend payout ratio cut back. However, Fitch does not
incorporate this scenario into its forecasts.

Solid Financial Profile: Fitch views Sisecam's financial profile as
solid, with high EBITDA margins and sound FFO generation, driven by
a vertically integrated business profile. Historical FFO-adjusted
gross leverage of around 3x and FFO-adjusted net leverage of below
2x are in line with investment-grade expectations under its
Building Materials Ratings Navigator. Fitch expects Sisecam to
continue operating with similar leverage metrics in the medium
term, despite its more conservative profitability assumptions and
expectation of negative FCF generation.

Limited Geographic Diversification: Sisecam's investment and
expansion plans for eastern Europe, the US and Russia are a step
towards reducing the company's exposure to the Turkish economy,
which has been a rating constraint. Sisecam has become more
geographically diverse, with revenue from the domestic market
declining to 40% in 2018 from 47% in 2012, backed by solid market
share gains in Russia and expansion into emerging markets. However,
Sisecam's emerging market presence is still high compared with such
peers as Compagnie de Saint Gobain (BBB/Stable).

Standalone Assessment: In applying its Parent and Subsidiary Rating
methodology, Fitch concluded that the legal, operational and
strategic ties between Sisecam and owner Turkiye Is Bankasi A.S.
(B+/Negative) are weak enough to rate the former on a standalone
basis. This is in line with Fitch's general approach towards
Turkish banks and their industrial subsidiaries.


DERIVATION SUMMARY

Rating Derivation versus Peers

Sisecam's financial profile is solid. Its conservative FFO gross
leverage metric of about 3x is commensurate with a 'BBB' rating
median, and is in line with such investment-grade peers as
Compagnie de Saint Gobain. This is despite the recent expansion
pipeline stressing FCF metrics and challenging conditions in some
sub-sectors.

Sisecam's conservative leverage profile is driven by strong
profitability and FFO generation, which is supported by the
company's market-leading positions in Turkey, Russia and eastern
Europe, and low cost base compared with peers. Sisecam remains the
market leader in all its sub-segments in Turkey, dominating more
than 60% of the domestic market, but remains a smaller company
globally than investment-grade peers.

Sisecam's manufacturing base remains in low-cost, emerging markets
compared with Saint Gobain and Owens Corning (BBB-/Stable).
Although this drives superior profitability, limited geographic
diversification remains a key rating constraint. Fitch views
Sisecam's end-market diversification as healthy, having exposure to
several industries, such as autos, construction, white goods, food
and beverage, and chemicals. Exposure to less cyclical businesses,
such as pharma, healthcare and infrastructure, is more limited than
some of its peers, but this is not considered a rating constraint.

Sisecam's geographic diversification is limited compared with
Turkish white goods manufacturer and exporter, Arcelik
(BB+/Negative). However, the company's wider end-market exposure
balances out the differences in business profile and have reduced
volatility in Sisecam's financial profile compared with its local
peer.

KEY ASSUMPTIONS

Fitch's Key Assumptions within Its Rating Case for the Issuer

  - Low-single-digit organic growth driven by Fitch's conservative
forecasts of Turkish construction market demand.

  - Marginally decreasing EBITDA margins driven by increasing
energy prices.

  - Higher capex driven by investment plans.

  - Dividend pay-out ratio at 50% of net income.

  - No sizeable M&A, nor divestments in investment portfolio.

  - Increasing interest costs over the medium term.



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U K R A I N E
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JSC CB: Fitch Affirms B- LT Issuer Default Ratings, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has affirmed the Long-Term Foreign- and
Local-Currency Issuer Default Ratings (IDRs) of the following four
Ukrainian state-owned banks at 'B-' with Stable Outlooks:

  - JSC CB PrivatBank;

  - JSC State Savings Bank of Ukraine (Oschadbank);

  - JSC The State Export-Import Bank of Ukraine (Ukreximbank); and

  - Public Joint-Stock Company Joint Stock Bank Ukrgasbank.

KEY RATING DRIVERS

IDRS, VIABILITY RATINGS AND NATIONAL RATINGS

The banks' Long-Term IDRs are driven by their standalone
creditworthiness as defined by their Viability Ratings (VRs) of
'b-'. The IDRs are also underpinned by their Support Rating Floors
(SRFs) of 'B-', which reflects Fitch's view of potential state
support for these banks, if required. The banks' National Long-Term
Ratings of 'AA(ukr)' reflect their creditworthiness relative to
peers within Ukraine.

The VRs for all four banks primarily reflect their sensitivity to
the vulnerable domestic operating environment where they operate as
Ukraine's largest financial institutions. Its assessment also
consider the banks' 100% government ownership (95% for Ukrgasbank),
large exposure to long-term sovereign bonds (for all four banks)
and material lending to state-controlled companies (for three banks
except for PrivatBank), which further underpin their strong
correlation with sovereign and broader public sector risks.

PRIVATBANK

PrivatBank's VR also reflects its potentially highly pro-cyclical
business model centred on credit cards. The bank's large stock of
distressed legacy loans is nearly fully provisioned, while loss
absorption capacity and liquidity position have strengthened
recently, due to healthy retail-led revenues.

PrivatBank's holdings in sovereign bonds totalled 61% of its assets
at end-1Q19, which were largely built up from equity contributions
from the state in 2017. Given the bank's limited lending to and
borrowing from Ukraine's state-controlled companies, its exposure
to public sector risks are relatively limited compared with the
other state-owned banks.

Net loans formed only 19% of assets at end-1Q19 but this was
largely impaired. The bank's impaired loan (IFRS Stage-3 and POCI)
to gross loans ratio was a high 83% of gross loans. Around 72% of
gross loans (and a large part of impaired loans) are allegedly
linked to PrivatBank's previous owners and senior management.
However, incremental risks are limited due to strong loan loss
allowance coverage (82% of gross loans) with the bank addressing
its legacy asset quality problems.

Capitalisation is moderate. At end-2018, the Fitch Core Capital
(FCC) was 12% of reported Basel I risk-weighted assets (RWA), lower
than its regulatory total capital adequacy ratio of 17%.
PrivatBank's internal capital generation is weighed down by
increased dividend repayments (90% of 2018's net income was paid
out in June 2019) and litigation claims by investors in its USD375
million senior unsecured Eurobonds, which were bailed-in in 2016.

The bank is also exposed to a moderate net long open currency
position, equal to about the size of FCC at end-1Q19. This is
primarily driven by the large exposure to Ukrainian
hryvnia-denominated sovereign bonds for which repayments are linked
to the US dollar and euro exchange rates prevailing at the maturity
date.

Profitability has continued to strengthen recently. Operating
profits equalled an annualised 5% of RWA in 2018, compared with a
small profit in 2016 and losses in 2017. However, the bank still
needs to build a track record of strong and sustainable
profitability in its retail business.

Liquidity risks have somewhat abated with highly liquid assets
(cash and claims on investment-grade foreign banks) growing to 14%
of liabilities at end-1Q19 from less than 10% previously. Limited
wholesale funding sources further benefit the funding profile.
Sovereign bonds (an equivalent of 73% of liabilities) are unlikely
to be a reliable liquidity source as local repo limits available
could be small, especially in foreign currencies.

OSCHADBANK AND UKREXIMBANK

The banks' VRs benefit from their systemic status, company profile
and ordinary sovereign support. The VRs also positively consider
the banks' demonstrated commitment to meeting obligations on their
previously restructured Eurobonds, based on the large repayments
made since the beginning of 2019.

Government ownership and large direct exposure to the sovereign and
state-controlled companies underpin the strong correlation of the
banks' credit profiles with sovereign risks. Sovereign debt and
claims on the National Bank of Ukraine made up 57% of total assets
at Oschadbank and 40% at Ukreximbank at end-2018. Loans to
state-controlled companies equalled a further 10% and 18% of total
assets, respectively.

Fitch views the banks' high stocks of impaired loans, which have
not changed since the last rating review, as additional constraints
on their credit profiles relative to the operating environment and
company profile assessments. Stage-3 and POCI loans equalled a high
60% of gross loans at Oschadbank and 59% at Ukreximbank at
end-1Q19. Reserve coverage has improved as a result of IFRS 9
implementation. Both banks' loan loss allowances (LLAs) equalled
48% of their respective gross loans at end-1Q19.

Oschadbank's FCC ratio was a moderate 13% of Basel I RWA and
Ukreximbank's was a lower 10% at end-1Q19. In addition, impaired
loans net of LLA were 0.9x of Oschadbank's FCC and a high 1.7x FCC
at Ukreximbank. The prospect of further equity support to each bank
from the state is uncertain at present, while Ukreximbank has
increased dividend repayments.

Profitability was stable in 2018 and remained at low levels.
Oschadbank's net profits were immaterial while Ukreximbank's
profits were a modest 8% of average equity. Fitch expects
Oschadbank and Ukreximbank to report moderate net profits in 2019
considering the moderately improving economy.

Funding profiles continued to be constrained by material FC
liabilities. These made up 51% of Oschadbank's total liabilities
and a higher 77% at Ukreximbank at end-2018. High shares of FC
funding, especially at Ukreximbank, were due to outstanding
wholesale foreign funding. Since the beginning of 2019, each of the
banks repaid USD0.5 billion on their respective previously
restructured senior Eurobonds, including coupons.

Operational liquidity did not suffer from the repayments as both
banks sourced cash mostly from the repayments on their sovereign
bonds. Post-repayment, highly liquid assets made up 9% of deposits
at Oschadbank and 21% at Ukreximbank. The former will face another
USD0.5 billion Eurobond repayment including coupon next year and
the latter will have to meet a USD0.1 billion on Eurobonds this
year as well as USD0.2 billion on bilateral loans in 2020 and
USD0.7 billion on Eurobonds in 2021. Cash flows from their
sovereign bond portfolios remain the main liquidity sources for
these repayments.

Oschadbank' and Ukreximbank's ESG Governance Structure scores are
at '4' due to their significant linkages with the state authorities
based on ownership, large holdings of sovereign bonds and lending
to public sector entities.

UKRGASBANK

The bank's VR also reflects its exposure to the difficult operating
environment, significant holdings of sovereign debt securities (23%
of total assets at end-1Q19) as well as the growing credit
concentrations in the renewable energy sector. The VR factors in
Ukrgasbank's better track record of servicing external debt
(although its borrowings have been limited so far) and lower stock
of impaired loans compared with the state-owned peers.

Ukrgasbank's 19% Stage 3 loans at end-1Q19 were tempered by loan
loss allowances at 17% of gross loans. The quality of the largest
loans is also acceptable, based on Fitch's review. However, its
unseasoned loan book and significant FC lending (49% of gross loans
at end-1Q19), mostly classified as performing, represent
considerable loan quality risks for the bank.

Moderate capitalisation, as captured by the 12% FCC ratio at
end-1Q19, benefits from its recently moderate loan growth and high
reserve coverage of reported problem loans. Profitability is also
only moderate, with return on average equity of 14% in 2018 (down
to an annualised 4% in 1Q19 due to a large borrower having been
restructured).

Ukrgasbank's funding profile currently benefits from low foreign
funding but the bank seeks to boost this by developing relations
with "green" funding sources. High deposits concentration, with one
depositor, albeit long-standing and stable, making up 12% of total
customers at end-1Q19, is an additional funding constraint.

Fitch view liquidity as currently acceptable, especially in local
currency, given its stock of highly liquid assets at 16% of
liabilities at end-1Q19. Ukrgasbank's unpledged government
securities comprised a further considerable 33%, although these
were exposed to the same repo market limitations as the ones for
the state-owned peers.

SUPPORT RATINGS AND SUPPORT RATING FLOORS

The Support Ratings of '5' and Support Rating Floors of 'B-'
reflect Fitch's belief that sovereign support, while possible,
cannot be relied upon. Its view is based on the Ukrainian
authorities' limited ability to provide support to the banks, in
particular in FCs in case of need, as indicated by the sovereign's
low 'B-' ratings. This is illustrated in the state's failure to
provide pre-emptive FC support as required to Oschadbank and
Ukreximbank in 2015 and PrivatBank in 2016, when these banks
defaulted on their respective Eurobond obligations.

The propensity of the Ukrainian authorities to provide support all
four banks remains high, in Fitch's view, particularly in local
currency. This is based on:

  - high systemic importance, particularly significant in the case
of PrivatBank, accounting for by far largest 35% market share in
the system's retail deposits;

  - Oschadbank's and Ukreximbank's 100% ownership by the Ukrainian
Cabinet of Ministers (central government) and Ukrgasbank's 95%
state ownership;

  - the record of capital support under different governments to
Oschadbank and Ukreximbank and post-nationalisation equity support
to PrivatBank; and

  - the small cost of potential support to Ukrgasbank given its
total assets equalling USD3.2 billion at end-1Q19.

Fitch views PrivatBank's state ownership as non-strategic given
that it arose from a State-led rescue, rather than held for policy
objectives, as well as the authorities' plans to dispose of a
controlling stake in the bank, potentially via an IPO, by
end-2022.

Fitch does not expect a disposal of shares in PrivatBank or a
potential sale of a minority stake in Oschadbank to the European
Bank for Reconstruction and Development (EBRD; AAA/Stable), which
was proposed some time ago as the first stage of a planned
privatisation, to affect their SRFs.

SENIOR AND SUBORDINATED DEBT

The 'B-' ratings of Ukreximbank's senior unsecured debt, issued by
UK-registered BIZ Finance PLC, and that of Oschadbank, issued by
UK-registered SSB No.1 PLC, are aligned with the banks' Long-Term
FC IDRs due to average recovery expectations captured by the
Recovery Ratings at 'RR4'.

The 'B-' long-term debt rating of Biz Finance Plc's
hyrvnia-denominated senior unsecured Eurobond (ISIN of
XS1713473517) is aligned with Ukreximbank's Long-Term
Local-Currency IDR.

The 'CCC' subordinated loan participation notes, issued by Biz
Finance PLC, are rated two notches below Ukreximbank's 'b-' VR, due
to moderate incremental non-performance risks and likely
below-average recoveries in case of default as a result of
subordination to senior unsecured obligations.

RATING SENSITIVITIES

IDRS, VRS, SUPPORT RATINGS, SUPPORT RATING FLOORS, NATIONAL RATINGS
AND SENIOR DEBT

The IDRs, VRs, National Ratings, debt ratings and the SRFs of the
four banks are highly correlated with the sovereign's credit
profile and therefore sensitive to a sovereign downgrade. An
upgrade of the sovereign could result in an upgrade of the banks'
ratings if Fitch takes the view that the sovereign's ability to
provide support to the banks in FC has also materially improved.

Upside for the banks' VRs is currently limited. The VRs could be
downgraded if additional loan impairment recognition undermines
capital positions without sufficient ordinary support being
provided by the authorities, or if material deposit outflows
sharply erode the banks' liquidity, in particular in FC. Further
stabilisation of the sovereign's credit profile and the country's
economic prospects would reduce downside risks to the ratings.

SUBORDINATED DEBT

Ukreximbank's subordinated debt rating is sensitive to the same
considerations that might affect the bank's VR and will move in
tandem with it.

The rating actions are as follows:

JSC CB PrivatBank

Long-Term Foreign-Currency IDR: affirmed at 'B-'; Outlook Stable

Long-Term Local-Currency IDR: affirmed at 'B-'; Outlook Stable

Short-Term Foreign-Currency IDR: affirmed at 'B'

Viability Rating: affirmed at 'b-'

Support Rating: affirmed at '5'

Support Rating Floor: affirmed at 'B-'

National Long-Term Rating affirmed at 'AA(ukr)'; Outlook Stable.

Ukreximbank

Long-Term Foreign- and Local-Currency IDRs: affirmed at 'B-',
Outlook Stable

Short-Term Foreign-Currency IDR: affirmed at 'B'

Support Rating: affirmed at '5'

Support Rating Floor: affirmed at 'B-'

Viability Rating: affirmed at 'b-'

National Long-Term Rating: affirmed at 'AA(ukr)'; Outlook Stable

Biz Finance PLC

Senior unsecured debt: affirmed at 'B-'/ Recovery Rating 'RR4'

Subordinated debt: affirmed at 'CCC', Recovery Rating at 'RR5'

Oschadbank

Long-Term Foreign- and Local-Currency IDRs: affirmed at 'B-',
Outlook Stable

Short-Term Foreign-Currency IDR: affirmed at 'B'

Support Rating: affirmed at '5'

Support Rating Floor: affirmed at 'B-'

Viability Rating: affirmed at 'b-'

National Long-Term Rating: affirmed at 'AA(ukr)'; Outlook Stable

SSB No.1 PLC

Senior unsecured debt: affirmed at 'B-'/ Recovery Rating 'RR4'

JSB Ukrgasbank

Long-term Foreign and Local Currency IDRs affirmed at 'B-', Outlook
Stable

Short-term Foreign and Local Currency IDRs affirmed at 'B'

Support Rating affirmed at '5'

Support Rating Floor affirmed at 'B-'

Viability Rating affirmed at 'b-'

National Long-Term Rating affirmed at 'AA(ukr)', Outlook Stable

KONDOR FINANCE: Fitch Rates EUR600MM Sr. Unsec. Notes final 'B-'
----------------------------------------------------------------
Fitch Ratings has assigned final ratings of 'B-' to Kondor Finance
plc's EUR600 million senior unsecured loan participation notes
(LPNs; Tranche A, XS2027394233) and USD335 million senior unsecured
LPNs (Tranche B, XS2027393938). This is in line with National Joint
Stock Company Naftogaz of Ukraine's Long-Term Issuer Default Rating
(IDR) of 'B-'/Stable.

The notes are issued by Kondor Finance on a limited recourse basis
for the sole purpose of funding a loan to Naftogaz. They constitute
direct, unconditional senior unsecured obligations of Naftogaz and
rank pari passu with all other present and future unsecured and
unsubordinated obligations. Tranche A has a five-year term, a
bullet repayment and a fixed coupon of 7.125%. Tranche B has a
three-year term, a bullet repayment and a fixed coupon of 7.375%.

Naftogaz plans to use the proceeds from the loan for general
corporate purposes, including the purchase of natural gas. The
final rating follows a review of the final terms and conditions
conforming to information already received when Fitch assigned the
expected rating on November 2, 2018.

KEY RATING DRIVERS

Ratings in Line with Sovereign: While Fitch views the links between
Naftogaz and Ukraine as strong, Naftogaz's rating is driven by its
standalone credit profile (SCP) of 'B-' because it is at the same
level as the sovereign's under Fitch's GRE rating criteria. The
assessment of the ties reflects its view of status, ownership and
control, record of support, and expectations and financial
implications of a potential default of Naftogaz as strong under the
criteria. Fitch views the socio-political implications of a
potential default of Naftogaz as very strong.

Naftogaz is 100% state-owned and is strategically important as
Ukraine's largest natural gas production, wholesale, transmission
and trading company. Dividends, taxes and levies paid by Naftogaz
represented 14.9% of Ukraine state revenue in 2018. The state
guaranteed 28% of the company's gross debt at end-2018. The debt
guaranteed by the World Bank was repaid on May 8, 2019. In
2012-2015, the government provided about UAH141 billion in direct
support to Naftogaz. Naftogaz's financial performance is closely
monitored by the IMF, Ukraine's main lender, which incentivises the
government to ensure that Naftogaz is adequately funded.

Ukraine Affirmed at 'B-': Fitch affirmed Ukraine's Long-Term
Foreign-Currency IDR at 'B-' with a Stable Outlook in March. In
Fitch's view, Ukraine's IDR balances weak external liquidity, high
external financing needs driven by sovereign external debt
repayments, a weak banking sector, institutional constraints and
political risks in relation to peers, against improved policy
credibility and consistency, improving macroeconomic stability,
declining government debt, and a record of bilateral and
multilateral support.

Standalone Credit Profile: Naftogaz's SCP of 'B-' captures its gas
transit and domestic transportation by main pipelines monopoly in
Ukraine and improved financial profile and liquidity, although the
latter remains weak. It also reflects uncertainties and potential
volatility in its operating and financial profile after 2019. In
its view, Naftogaz's stronger financial performance in 2016-2018
may not be sustainable in the long term, as it depends on external
factors for which Fitch has limited visibility, such as domestic
gas prices and increasing accounts receivable from distribution
intermediaries, as well as the unbundling of the transit division.

Regulatory Risks Lessen: A recent decree by the Cabinet of
Ministers of Ukraine provides a new pricing formula for customers
under the Public Service Obligation (PSO). Due to low market
prices, which are lower than the PSO-determined prices, prices of
gas for PSO customers decreased in June by 7.3% from May. Naftogaz
is obliged to supply gas to municipal heat utilities and
distribution intermediaries until May 1, 2020 under the PSO regime.
It is legally required to continue supply to some of its non-paying
customers under certain conditions, which may negatively affect the
collectability of receivables as long as the PSO is in operation.

Naftogaz estimates that the state owes it significant compensation
under the PSO for supplying gas to customers at below market
prices, but Fitch conservatively excludes any compensation in its
forecasts.

Planned Gas Transit Unbundling: Ukraine's government has committed
to reform the energy sector, in line with the EU's third package.
This implies market liberalisation and unbundling of the gas
transmission function (TSO) from gas production and supply.
Naftogaz expects this unbundling to take place in 2020, which is
also its assumption, after the gas transit contract with Gazprom
PJSC (BBB-/Positive) expires. Naftogaz expects Ukrtransgaz PJSC,
which handles gas transit, to remain its subsidiary until then, but
Fitch assumes no revenue from transit or any compensation for the
unbundled assets.

Focus on Domestic Markets: After 2020, Naftogaz will focus on
domestic gas sales, storage, domestic petrol products and LNG
sales, gas production and service legal agreements with the newly
unbundled gas transit company. Fitch expects leverage to gradually
increase to about 1.8x funds from operation gross adjusted leverage
by 2021 to reflect lower earnings due to unbundling. Fitch also
expects increased capex to boost domestic gas production to about
18bcm (15.5bcm in 2018) by 2021 both through greenfield and
brownfield investments. Naftogaz accounts for about 80% of
Ukraine's domestic gas production.

Favourable Arbitration Ruling: In 2017 and 2018, the Arbitration
Institute of the Stockholm Chamber of Commerce effectively ruled in
favits of Naftogaz in two multi-billion-dollar cases involving
Gazprom. As a result, Fitch believes the risks to Naftogaz's
financial position stemming from the arbitration are eliminated.
Fitch does not incorporate the USD2.6 billion net award in favits
of Naftogaz in its forecasts since its timing is uncertain.

Gazprom has appealed the award in the gas transit arbitration case
but Naftogaz has proceeded with enforcing the arbitration ruling
and is assessing alternatives to recover the award from Gazprom.
Fitch does not include any proceeds from arbitration outcomes in
its base case.

Disputes with Gazprom Continue: Naftogaz does not purchase natural
gas from Gazprom following the latter's refusal to resume supplies
in March 2018. Fitch believes that Naftogaz should be able to buy
the required volumes of gas from European suppliers as in
2016-2018. Gazprom depends on Naftogaz for gas transit to Europe
and Fitch expects it to honits its obligations under the transit
agreement until 2020. However, gas transit volumes could materially
reduce from 2020 when alternative pipelines Nord Stream II and
TurkStream ramp up.

DERIVATION SUMMARY

Naftogaz operates in a weaker operating environment than other
Fitch-rated EMEA gas transmission and distribution companies, such
as eustream, a.s. (A-/Stable), KazTransGas JSC (BBB-/Stable) and
KazTransGas Aimak JSC (BBB-/Stable).

While Naftogaz's projected financial metrics for 2018-2019 are
strong relative to peers, its SCP of 'B-' reflects potential cash
flow volatility as the forecasts are sensitive to the continued
indexation of domestic gas prices in Ukraine, collectability of
accounts receivable and the impact of unbundling of the company's
gas transportation business expected post-2019. The rating of
Naftogaz is at the same level as Ukraine under the GRE rating
criteria.

KEY ASSUMPTIONS

Fitch's Key Assumptions within Its Rating Case for Naftogaz's IDR

  - USD/UAH exchange rate of 28.86 in 2019 and 30.60 for 2020.

  - No gas transit and transportation revenue post-2020 due to
unbundling and the expiry of contract with Gazprom.

  - Domestic gas sales volumes of about 18.5bcm a year.

  - Declining profitability across most segments from 2019.

  - Dividends payment of USD251 million for 2019.

Fitch's Key Assumptions for Bespoke Recovery Analysis Include:

  - Naftogaz's value on a going-concern basis in a distressed
scenario and assumes that the company would keep its operations and
would be restructured rather than liquidated.

  - Fitch has applied a 30% discount to 2020 EBITDA,
post-unbundling, reflecting its view of a sustainable,
post-reorganisation level upon which Fitch bases the valuation of
the company. The discount reflects risks associated with the
regulatory framework, potential weakening of financial profile and
other adverse factors.

  - A 2.5x multiple is used to calculate a post-reorganisation
enterprise value (EV). It is below the mid-cycle multiple for EMEA
oil and gas companies. It captures higher-than-average business
risks in Ukraine, reflects Naftogaz's lack of unique
characteristics allowing for a higher multiple, or significant
undervalued assets.

  - Fitch has taken 10% off the EV to account for administrative
claims. Fitch has also treated all banking debt as prior-ranking.
The noteholders' expected recoveries are capped at 50% or 'RR4'
(soft cap), in line with its criteria as Naftogaz's physical assets
are located in Ukraine

RATING SENSITIVITIES

The following rating sensitivities are for Naftogaz's IDR:

Developments that May, Individually or Collectively, Lead to
Positive Rating Action

  - A positive rating action on Ukraine would lead to Naftogaz's
rating being equalised with the sovereign's assuming that
Naftogaz's SCP remains up to three notches away from the
sovereign's and the links with the state do not weaken.

Developments that May, Individually or Collectively, Lead to
Negative Rating Action

  - A negative rating action on Ukraine would be replicated for
Naftogaz.

  - Significant deterioration of Naftogaz's financial profile or
liquidity following the planned reorganisation with simultaneous
weakening of the linkage with the state.

The following rating sensitivities are for Ukraine:

Developments that May, Individually or Collectively, Lead to
Positive Rating Action

  - Increased foreign-currency reserves and external financing
flexibility.

  - Improved macroeconomic performance.

  - Sustained decline in public debt to GDP.

Developments that May, Individually or Collectively, Lead to
Negative Rating Action

  - Re-emergence of external financing pressures and increased
macroeconomic instability, for example stemming from delays to
disbursements from, or the collapse of, the IMF programme.

  - External or political/geopolitical shock that weakens
macroeconomic performance and Ukraine's fiscal and external
position.



===========================
U N I T E D   K I N G D O M
===========================

ARCADIA GROUP: Dispute w/ Irish Life Over Lease to be Fast-tracked
------------------------------------------------------------------
Irish Examiner reports that a dispute between Irish Life and a
UK-based fashion retail group over the purported termination of a
lease for a premises in Cork City has been admitted to the
fast-track Commercial Court list.

Irish Life Assurance PLC has brought the proceedings against the UK
based Arcadia Group Ltd over a lease entered into in 1987 in
respect of premises owned by Irish Life located No 101 Patrick
Street in Cork, Irish Examiner relates.

The annual rent for the premises is EUR650,000, Irish Examiner
discloses.  The lease is due to expire in 2022, Irish Examiner
states.

Earlier this year Arcadia, which operates well-known fashion brands
Burton, Dorothy Perkins, Evans, Miss Selfridge, Topman, Topshop and
Wallis, entered into a process in the UK called a Company Voluntary
Arrangement, (CVA), which is similar to the examinership process in
Ireland, Irish Examiner recounts.

According to Irish Examiner, Arcadia claims that arising out of the
CVA, which was approved by a majority of the group's shareholder
and creditors, the lease in respect of the Cork premises has been
terminated.

This is disputed by Irish Life, which also claims that the rent
payable between July of this year and when the lease was due to end
in 2022 is EUR1.95 million, Irish Examiner notes.

In its action, Irish Life seeks declarations including that the
lease dated October 7, 1987, in respect of the property continues
in full force and effect, Irish Examiner relays.

It also seeks a declaration that the purported termination of the
lease by Arcadia on June 12, 2019, using a CVA is not entitled to
be recognised or in Ireland.

The action was admitted to the Commercial Court list by Mr Justice
Robert Haughton.


DEBENHAMS PLC: May Enter Administration as Early as September
-------------------------------------------------------------
Jonathan Eley at The Financial Times reports that a judge has
raised the chances of department store Debenhams entering
administration as early as September after ruling that a landlord
bankrolled by Mike Ashley's Sports Direct group can expedite a
challenge to the retailer's restructuring proposals.

That could lead to the restructuring being unwound, which would
almost certainly push the retailer into administration, the FT
states.

According to the FT, Justice Mann said on July 22 in London's High
Court that the case could be heard on Sept. 2 and go on for four to
five days, subject to a judge being available.

The court decision was made after Combined Property Control Group,
which owns six properties let to Debenhams, challenged the company
voluntary arrangement, or CVA, that the retailer's unsecured
creditors approved in May, the FT relates.

The landlord wants an expedited trial because of what it regards as
unfair conditions in the terms of the refinancing of the company,
where security of GBP228 million of assets passed to previously
unsecured creditors, the FT discloses.

They say this is unfair because these creditors, which include US
hedge funds led by Silver Point Capital, had to provide only GBP60
million of new money before they acquired the company, the FT
notes.

These creditors then launched the CVA to restructure its lease
obligations, the FT states.

CPC Group says the company needs to enter administration by
September 29 or the unsecured creditors--the landlords, local
authorities and suppliers--will potentially lose GBP228.8 million
that could otherwise be clawed back, the FT relays.  That is
because the refinancing on March 29 was subject to a six-month
clawback, according to the FT.


DEBENHAMS PLC: Sports Direct Drops CVA Challenge, Backs CPC Action
------------------------------------------------------------------
The Herald reports that Sports Direct has pulled out of a challenge
to store closure plans at Debenhams, but is continuing to back a
property company's claim against the process.

In a statement on July 22, Debenhams said Sports Direct had
withdrawn from a challenge to its Company Voluntary Arrangement
(CVA), the insolvency process which was approved by creditors in
May, The Herald relates.

However, Mike Ashley's company is continuing to fund a challenge
brought by Combined Property Control Group (CPC) and has agreed to
bear any costs incurred by the firm as part of the legal battle,
The Herald discloses.

According to The Herald, Debenhams chairman Terry Duddy said: "As
Sports Direct has now acknowledged, it did not have sufficient
interest to challenge the CVAs, as its businesses are not adversely
impacted by the proposals and therefore had no legal basis for a
challenge.

"However, by continuing to fund CPC's challenge, Sports Direct is
deliberately acting against the vast majority of Debenhams'
stakeholders, including the more than 90% of our creditors who
supported our CVAs."

He called on CPC to withdraw the action and vowed that Debenhams
will vigorously defend its position, The Herald notes.

RM2: Seeks US$6-Mil. Cash Injection, Fails to File Accounts
-----------------------------------------------------------
Harriet Russell at The Telegraph reports that Neil Woodford-backed
pallets business RM2 will ask shareholders for an emergency US$6
million cash injection later this month after failing to file its
accounts before the end of June.

RM2's Aim-listed shares were suspended at the beginning of July at
8.5p after the logistics company failed to publish 2018 accounts on
time, The Telegraph relates.

Its shareholders will now be asked to approve the fundraising at a
general meeting on July 31 in Luxembourg, The Telegraph disclsoes.
According to The Telegraph, if investors fail to back the placing,
the company will move ahead with a voluntary liquidation, and
delist its shares from the London Stock Exchange.

RM2 designs pallets for the logistics sector and also offers
tracking and system management services.


VIVION INVESTMENTS: S&P Puts Prelim. 'BB' LT Corporate Rating
-------------------------------------------------------------
S&P Global Ratings assigned its preliminary 'BB' long-term
corporate rating to Vivion Investments Sarl (Vivion) and its
preliminary 'BB+' issue rating to its proposed senior unsecured
bond. S&P's preliminary recovery rating on this instrument is '2'.

Vivion's portfolio is composed of 56 hotel assets in the U.K. (63%
of total gross asset value [GAV]) and 41 commercial assets, mainly
offices, in Germany (37% of total GAV). The pro forma portfolio as
of March 31, 2019, (assuming closure of the currently signed
acquisitions and disposals and the completed reorganization of the
operational structure it its U.K. hotel portfolio) was EUR2.9
billion. Vivion was incorporated in October 2018, and since then it
has rapidly grown through acquisitions. S&P expects Vivion to
continue growing, especially in the German office market, although
to a lesser extent than in the past, in line with the company's
strategy.

S&P said, "Our rating takes into account the company's relatively
short track record of operating under its brand, given its recent
incorporation and its fast portfolio ramp-up, and therefore limited
historical cash flow visibility for us. The company has been very
acquisitive in both the U.K. and the German portfolios and we
expect the company to continue to grow."

Vivion's hotel assets are well located in the U.K.'s capital cities
and regional hubs, with some concentration in greater London,
accounting for 40% of the total hotels GAV. The company targets
mid-market hotels with an almost even number of business and
tourist customers. S&P said, "Although we note that tourism is one
of the largest industries in the U.K., representing around 10% of
local GDP and attracting around 38 million of overseas visitors, we
view the hotel segment as more dependent on economic developments
and therefore less resilient than other real estate segments, such
as residential or prime office assets. In addition, we are
monitoring any potential impact on the industry and hotel
valuations from the ongoing political uncertainty linked to Brexit.
We also remain cautious as to the increase in new supply we have
seen in the last 24 months, which is expected to continue through
2019 and could put pressure on hotels' occupation and room rates."
The four-star hotels, which are also the main category of Vivion's
assets, dominate London's pipeline of new rooms (approximately 35%
of total rooms, according to PwC).

S&P said, "We take a positive view on the undergoing reorganization
in the corporate structure of the hotels portfolio; Vivion will
dispose its remaining operating exposure to its hotels. Currently
the company still operates about 20 hotels in the Holiday Inn
portfolio, but we expect operations will be disposed in the coming
weeks. Vivion will dispose the entire hotel operations in favor of
Vivion's shareholder and third-party investors with extensive
operating experience in the hotel industry. These third-party
investors will also benefit from a medium-term ability to acquire
the remaining stake in the hands of Vivion's shareholder. Thanks to
this reorganization, Vivion will become a pure property owner
company with no exposure to operating risk in its hotel segment.
This compares positively with other hotel property companies we
rate, such as Covivio Hotels (BBB+/Stable/--), where a significant
part of its revenue depends on its hotels' turnover."

Vivion will also benefit from very long leases in its hotel
portfolio with a weighted average unexpired lease term (WAULT) of
16 years and a fixed rent that does not depend on the hotel
operator's performance. S&P said, "This is also a lease feature we
see as positive for cash flow stability compared with other hotel
landlords, in which leases include a portion of variable rent
linked to the hotel operator. We note, however, that hotel
landlords usually do not benefit from the amount of tenant
diversification comparable with commercial landlords. Vivion's
portfolio is still concentrated on four hotel brands: Holiday Inn
(44% of hotel keys), Hilton (17%), Hallmark (28%), and Crowne Plaza
(12%), with the three largest operators representing more than 50%
of the hotels revenue. This concentration risk can be partially
mitigated by the inflation-linked, triple-net lease structure of
its long leases, the rolling guarantees obtained from the
operators' parent entities (which we estimate are in place for more
than 80% of its exposure), and the possibility to take control of
the hotel's operations if the operator is not able to pay its
rent."

S&P said, "We note the favorable trends in the German commercial
market, especially in the office segment, which represents 82% of
the total German GAV, with robust tenant demand and historically
low vacancy rates. The German assets are under Vivion's subsidiary,
Golden Capital Partners SA, of which Vivion owns currently a 51.5%
stake. We understand that after the bond issuance, Vivion will
inject a combination of common equity and shareholder loan into
Golden Capital that will increase its stake to about 60%, a level
at which Vivion sees its stake for the long term." The remaining
40% will be in the hands of long-term, stable institutional
investors.

S&P said, "Vivion's German portfolio is currently composed of 41
assets mainly located in the Rhein-Ruhr region (47.4% of the total
GAV of the German portfolio), Berlin/Brandenburg region (32.1%),
and Frankfurt/Rhein-Main region (6.3%), where we expect positive
dynamics to be maintained. Vivion also benefits from index-linked
long leases with a WAULT of 6.6 years and good tenant diversity in
its German portfolio. The portfolio is well spread across more than
150 commercial tenants. The top 3 tenants represent around 21% of
Vivion German square meters. Vivion's top tenants are energy and
utilities companies and government-related entities, which we view
as relatively creditworthy. That said, we note that as of March 31,
2019, occupancy stands at 90.4%, which is below market levels.
Vivion has managed to quickly increase occupancy in its German
assets, and, thanks to the strengths of the market, we anticipate
that the company will be able to bring occupancy levels to the
94%-95% market level in the coming quarters."

S&P's assessment of Vivion's financial risk profile is supported by
its moderate levels of indebtedness, with a debt-to-debt plus
equity ratio expected to remain around 45% after the transaction
and EBITDA interest coverage of about 2.5x.

Vivion's capital structure includes shareholder loans, both at the
Vivion Investment Sarl level and the Golden Capital level,
including its minority interest. As of March, 31, 2019, the
aggregate amount of shareholder loans is EUR812.8 million (coming
from Vivion Holdings) and EUR239 million (coming from minority
shareholders at Golden Capital). S&P treats these shareholder loans
as equity, given the strong equity components included in its
documentation, such as deep subordination to other instruments in
the capital structure, long maturities beyond any outstanding
interest-bearing debt of Vivion, and Vivion's option to convert
them into common equity at its sole discretion.

S&P said, "We base our assessment on Vivion's pro forma numbers,
taking into account the reorganization of the U.K. hotel portfolio
structure and outstanding acquisitions with respective funding
plans. We expect EBITDA margins to be above 80%, in line with its
rated commercial real estate peers, benefiting from triple-net
lease structures in the hotels in the U.K. and mainly double-net
lease structures in the office segmentin Germany. We have assessed
our rating on Vivion based on our view of the company as a pure
property holding company no longer exposed to operations in its
hotel assets. Similar to our assessment of the business risk, we
also factor Vivion's lack of track record in terms of financial
strategy in our analysis.

"We also see certain currency and translation risk, as rents in the
U.K. portfolio are denominated in Sterling while Vivion reports in
euros. We understand that Vivion intends to achieve a natural
hedge, with debt being accommodated in euros and Sterling. We also
see as positive the fact that Vivion intends to maintain at least
80% of its debt under fixed interest after the transaction, either
with fixed-coupon debt or derivatives, and also its weighted
average debt maturity would be above five years.

"Our rating assessment incorporate a one-notch downward adjustment,
as we understand that the company's financial policy allows
leverage to be increased to a maximum loan-to-value ratio of 60%.
As the company remains in a growth phase, we factor into our rating
the possibility of temporary spikes in leverage, leading to our
adjusted ratio of debt to debt plus equity above 50% in case of
opportunistic acquisitions.

"The final ratings will depend on our receipt and satisfactory
review of all final transaction documentation of the proposed
benchmark senior unsecured bond and the successful repayment of
part of Vivion's existing secured indebtedness and shareholder
loans. Our final rating will also depend on the implementation of
the U.K. portfolio structure reorganization and conditions set up
in the bond documentation to release the proceeds from the escrow
mechanism. Accordingly, the preliminary ratings should not be
construed as evidence of a final rating. If S&P Global Ratings does
not receive final documentation within a reasonable timeframe, or
if final documentation departs from materials reviewed, we reserve
the right to withdraw or revise our ratings. Potential changes
include, but are not limited to, the utilization of bond proceeds;
maturity, size, and conditions of the bonds; financial and other
covenants; and security and ranking of the bonds.

"Our outlook on Vivion is stable because we think the company's
existing portfolio should generate stable cash flows over the next
12 months, thanks to its fully occupied, triple-net leased hotel
portfolio in the U.K. and the favorable market fundamentals in the
office market in Germany's metropolitan areas. Our outlook also
reflects our expectations that the company will continue to execute
its announced strategy in the next 12-24 months to grow its
exposure to commercial assets in Germany's metropolitan areas while
gradually increasing occupancy levels.

"We forecast that Vivion's debt-to-debt plus equity ratio will be
around 45% and EBITDA interest coverage around 2.5x in the next 12
months."

An upgrade would be contingent on Vivion's public commitment to
shift to a more conservative financial policy consistent with a
higher issuer credit rating. This would translate into maintaining
consistently its debt-to-debt plus equity below 50% and its EBITDA
interest coverage above 2.4x.

An upgrade could also hinge on the sustained delivery of the
current strategy and the maturity of the existing portfolio, which
would build a track record under its newly established corporate
structure. An upgrade would also require an increase in the scale,
balance, and diversity of its property portfolio; an improvement in
occupancy levels, including any new acquisitions; and enhancement
of its tenant base.

S&P said, "We could lower our rating on Vivion if the company were
not able to maintain a debt-to- We could lower our rating on Vivion
if the company were not able to maintain a debt-to-debt plus equity
ratio below 60% and EBITDA interest coverage above 1.8x. This
situation could materialize if the company were to deviate from its
existing financial policy with more debt-funded acquisitions or
declining values, especially in the hotel portfolio, as a result of
a change in supply trends or political uncertainties stemming from
Brexit, such as further weakening of the Pound Sterling.

"We would also view negatively occupancy levels' stagnation below
market levels or if the overall scale of the portfolio declined
significantly."

In addition, a negative rating action could stem from a
deterioration in liquidity, e.g., due to a large number of signed
acquisitions, not fully backed by committed funding sources or a
deterioration in its cash flow base as a result of weaker market
conditions, leading to increased vacancy rates.

WALNUT BIDCO: S&P Assigns Prelim 'B+' ICR, Outlook Stable
---------------------------------------------------------
S&P Global Ratings assigned a preliminary 'B+' issuer credit rating
to Walnut Bidco, and a preliminary 'B+' issue rating to the
proposed EUR775 million equivalent notes due 2024.

In July 2019, the Swedish founding family of Oriflame, af Jochnick,
and closely related parties will buy out the group through its
holding, Walnut Bidco, after other shareholders representing 66.5%
of shares accepted a bid that will take the company private. The
offer is supported by EUR291 million of new cash equity, EUR368
million of roll-over equity, and the proposed issuance of EUR775
million equivalent senior secured notes due 2024, as well as a
draw-down of EUR17 million on the new priority revolving credit
facility of EUR100 million.

S&P said, "The final rating will depend on our receipt and
satisfactory review of all final transaction documentation.
Accordingly, the preliminary ratings should not be construed as
evidence of final ratings. If we do not receive final documentation
within a reasonable time frame, or final documentation departs from
materials reviewed, we reserve the right to withdraw or revise our
ratings." Potential changes include, but are not limited to, use of
notes proceeds, maturity, size and conditions of the notes,
financial and other covenants, security, and ranking.

Oriflame is a producer and direct-seller of beauty and wellness
products. It generated EUR1.3 billion of sales and EUR199.6 million
reported EBITDA in 2018. S&P's rating assignment of 'B+' is
supported by its brand equity in key markets, its global
operations, and its significant free operating cash flow
generation, but constrained by its exposure to evolving regulatory
frameworks and its involvement in emerging markets with fluctuating
currencies and external environments that can lead to metrics
volatility.

Oriflame's brand equity is built around its "Beauty by Sweden"
proposition. Its diverse product offering is categorized in six
segments: Skincare (29% of total group sales in 2018), Colour
Cosmetics (19%), Fragrances (18%), Personal & Hair Care (16%),
Wellness (13%), and Accessories (5%). Products benefit from
positive aspects of the Swedish branding, and are targeted at the
mid to higher range of the mass market. The company sustains its
position by bringing about 400 new products to the market each
year. It will now focus on its most profitable segments of Skincare
and Wellness, which often come in daily routine sets, emphasizing
product loyalty, and allowing for more personalized advices and
value-added from sellers. Other categories help with fixed cost
recovery, and have specific roles: Colour Cosmetics act as an entry
point for new customers, Fragrances are often purchased as gifts,
and Personal & Hair Care and Accessories complete the range.

S&P said, "We view Oriflame's narrow focus on the direct-selling
channel as a constraint to our rating. The direct-selling model
involves selling through a network of consultants, who are not
employees of the company but generate income from selling
Oriflame's products to their families, friends, or wider circle.
Oriflame is one of the 10 biggest direct sellers globally, and the
direct-selling industry represents about $190 million. The industry
grows at about 4% per year according to the World Federation of
Direct Selling Association (WFDSA), and Oriflame benefits from its
focus on the fastest-growing subsegments of the industry with its
involvement in the Beauty and Wellness segments. In addition,
Oriflame is well-placed in its digital transformation, as about 96%
of all orders are made through online applications, including 46%
of orders through mobile applications.

"However, we believe that competition might intensify, as pure
online players are the fastest-growing channel in the Beauty and
Personal Care segment. In addition, the direct-selling model
involves recruiting new consultants every year and managing them
efficiently in order to limit the churn rate. Oriflame has about
three million consultants, of which about two-thirds are mainly
product users who benefit from discounts on products, and have a
high churn rate. About one million consultants are active sellers
of products and receive commissions and bonuses, and about 1% are
active leaders generating most of group's sales. In that active
network segment, the average tenure is 10 years. Oriflame's
strategy includes attracting and retaining consultants by offering
them training and viable business opportunities. We view consultant
retention as an inherent risk in the industry, however."

Oriflame is present in 4 continents and more than 60 countries,
which provides a good level of geographical diversification. The
largest countries in terms of operating profit are China and
Indonesia. Asia is more profitable than other regions thanks to a
more favorable product mix skewed towards Skincare and Wellness.
S&P views positively the geographical diversification and believe
it helps Oriflame to withstand volatility coming from the external
environment. The company is now focusing on six key markets: China,
Russia, Indonesia, Vietnam, Turkey, and Mexico.

S&P said, "We also view positively Oriflame's asset-light
manufacturing structure, with low capex and working capital
requirements. The group has six manufacturing facilities located in
some of its key markets, in India, China, Russia, and Poland, and
produces about 60% of its merchandise. Oriflame plans to increase
insourcing, which we believe will contribute to improving operating
margins. Thanks to this lean structure, we anticipate that the
group will generate recurring strong operating cash flow of above
EUR70 million each year.

"We consider Oriflame's new capital structure to be leveraged, with
adjusted debt to EBITDA about 4x in 2019 and 2020, and funds from
operations (FFO) to debt at about 15%. We net about 75% of the cash
in our debt calculation, as we understand the group can access this
portion of cash thanks to efficient cash pooling practices in
Switzerland. Historically, we understand the company has never had
issues accessing cash to service dividends, interests, and supplier
payments."

The company generates revenues in about 40 different currencies.
Thanks to appropriate revenue-cost currency matching, it is able to
cover about 55% of revenues with natural hedging and cross-currency
hedges. S&P said, "We understand interest payments will be made in
euros. We believe the euro-specific interest coverage will be above
1.2x in the coming two years and therefore we think the currency
risk of the debt is neutral."

The rating incorporates a one-notch negative adjustment reflecting
the specific situation of Oriflame, involved in an industry with
evolving regulatory environments, and subject to volatility of
credit metrics. Direct-selling is often a regulated activity to
prevent fraudulent schemes and false claims on products. Although
Oriflame is used to navigating evolving regulatory frameworks, it
is not immune to the imposition of stricter local regulations. For
example, the Chinese government established a 100-day moratorium on
direct-selling meetings in January 2019 to investigate and shut
down illegal schemes. This had a strong negative impact on
first-quarter 2019 results for Oriflame, with a 17% decline in
sales in Asia. S&P said, "We understand that the ban is now over
and that Oriflame passed all controls. However, there are still
currently ongoing reviews of direct-selling legislations in China,
Indonesia, and Vietnam. Although the company expects no major
disruptions, we believe this is a risk that companies outside that
industry do not face. In addition, due to its currency exposure,
credit metrics have been historically volatile when translated to
euros (topline decline of 10% in 2014 compared with 1% growth in
local currency for example), and we believe Oriflame may continue
to face important swings in topline revenues and to a lesser extent
in profit margins."

S&P said, "The stable outlook reflects our expectation that
Oriflame will continue to post adjusted EBITDA margins of
15.0%-15.5% in the next 12 months, and will maintain adjusted debt
to EBITDA between 3.5x and 4.5x, and EBITDA interest coverage above
2.5x. We believe that the company may experience marginal sales
decline in 2019 due to a tough external environment, especially in
Asia following changes in regulations, but that it will
progressively evolve its product offering to a more favorable price
mix, contributing to an increase in profitability. We also believe
the group will continue to generate significant free operating cash
flow of above EUR70 million in the next 12 months.

"We could lower our ratings if Oriflame experienced significant
challenges affecting its operational performance, for example a
failure to stabilize its key segments of Skincare and Wellness,
increased competition, or if there were unfavorable regulatory
changes implemented simultaneously in countries where Oriflame is
most exposed. This could translate into a contraction in the number
of consultants, which could lead to reduced volumes sold and
adjusted EBITDA margins contracting by more than 200 bps. We would
lower our ratings if adjusted debt to EBITDA metrics rose above 5x,
and EBITDA interest coverage dropped below 2x.

"We could raise our ratings if Oriflame experienced a sustainable
increase in its profitability and if we saw substantial growth
trends in its key segments, as well as no big volatile movement in
credit metrics. We would also take a more positive view if
Oriflame's key countries of operation made strong commitments to a
stable regulatory environment for direct-selling activities. We
could also revise upwards our assessment if FFO to debt was
sustainably above 20% and EBITDA interest coverage above 6x."




                           *********


S U B S C R I P T I O N   I N F O R M A T I O N

Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.

Copyright 2019.  All rights reserved.  ISSN 1529-2754.

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