Tashkent, Uzbekistan (UzDaily.com) -- Fitch Ratings has affirmed Enter Engineering PTE. Ltd.’s (EE) Long-Term Issuer Default Rating (IDR) at ‘B+’, and withdrawn the IDR. Its senior unsecured rating of ‘B+(EXP)’ has also been withdrawn. The Rating Outlook at the time of the withdrawal was Stable.

Fitch has withdrawn the IDR for commercial purposes and the senior unsecured rating as the notes issue is no longer expected to proceed. Fitch will no longer provide ratings or analytical coverage of EE.

EE operates in a single country, Uzbekistan, which limits customer and contract diversification due to the size of the economy. The number of projects and customers is therefore limited, a large proportion of which are government-owned entities. This project and customer concentration implies significant risk to the company from any payment or execution failures. Nevertheless, EE is a clear leader in the local market, which slightly mitigates the concertation risk. We nonetheless view it as key constraint on the company’s business profile.

EE has continued to grow its backlog, as it further strengthens its local presence. The backlog of ongoing projects has grown to USD4.9 billion and represented more than 5.0x book-to-bill of 2020 revenues, from USD4.4 billion in 2019. This provides EE with a good visibility of revenues and future cash flows and also compares well with its much larger international peers. EE has around USD2 billion of further projects in the pipeline, which have not yet been officially signed, but have a high chance of approval. This will further improve its local leadership position and provide some contract diversification.

Working capital has been volatile, which is a direct result of EE’s limited project diversification. We forecast significant working-capital outflow in 2021 to complete ongoing projects for which advance payments were received in 2019. However, Fitch forecasts working capital to reverse in 2022, as EE is due to receive payments for completed projects and advances for recently signed ones. Expansion of the project portfolio should limit the volatility of working capital, which remains one of the main risk factors of its financial profile.

Fitch views EE’s financial profile as solid, benefitting from lower leverage for its rating and limited EBITDA-margin volatility. Leverage metrics are strong and we expect funds from operations (FFO) gross leverage to remain comfortably below 3.0x in 2022-2024, which is in line with the ‘BB’ rating median. Fitch forecasts an increase in gross leverage in 2021 to over 5.0x, due to cash outflows required for ongoing projects. Our forecast of a reversal in working capital in 2022 should allow leverage to reduce.

Unlike most of its E&C peers, EE operates in a single country, Uzbekistan, which limits its geographical, contract, customer diversification and, ultimately, its revenue base. While it has a prudent bidding policy and is the largest E&C company in the country, the lack of contract diversification also leads to increased working-capital volatility, due to an inability to smooth out the payments from its customers. However, its financial profile is solid and with FFO gross leverage lower than that most non-investment grade peers such as Webuild S.p.A. (BB/Stable)

- Revenue growth at an average of around 12% over 2021-2024, based on the current project backlog

- EBITDA margin sustained at around 12% to 2024

- Working-capital outflow of USD297 million in 2021, followed by an inflow of USD245 million in 2022

- No dividend payments or M&A activity to 2024

At end-2020 EE’s debt stood at USD263 million, of which USD183 million was short-term, while it only had USD73 million of Fitch-calculated cash adjusted for working-capital volatility. It has refinanced its bank debt and as of September 2021 its nearest maturities were in 2H22 in the amount of around USD70 million, while the rest of its debt matures in 2024.

Its newly-issued bank loans should be sufficient to cover negative free cash flow in 2021 of USD277 million, which is mainly due to the working-capital outflows. We forecast working capital flows to reverse in 2022, which should help reduce the debt quantum.

EE is the largest E&C company in Uzbekistan and participates in the largest projects on construction and modernistion of facilities in the oil and gas, chemical, power energy and civil construction industries. Its portfolio consists of projects with a total value of USD4.9billion.

Following the withdrawal of ratings for EE, Fitch will no longer be providing the associated ESG Relevance Scores.