JCR Eurasia Rating, in its periodic review, has upgraded the ratings of ‘Gap Güneydoğu Tekstil San. Ve Tic. A.Ş. and its consolidated structure’ as ‘BBB(Trk) on the Long Term National Local Scale and determined the outlook on the national ratings as ‘Sta

JCR Eurasia Rating, in its periodic review, has evaluated ‘Gap Güneydoğu Tekstil San. Ve Tic. A.Ş. and its consolidated structure’ in an investment-level category on the national and international scales and upgraded the ratings on the Long Term National Scale as ‘BBB (Trk)’ and determined the Short Term National Scale as A-3 (Trk) with ‘Stable’ Outlooks. Additionally, JCR Eurasia Rating has affirmed the Long Term International Foreign and Local Currency Ratings as ‘BBB-’. Other notes and details of the ratings are given in the table below:

Long Term International Foreign Currency

:

BBB-/ (Stable Outlook)

Long Term International Local Currency

:

BBB- / (Stable Outlook)

Long Term National Local Rating

:

BBB (Trk) / (Stable Outlook)

Short Term International Foreign Currency

:

A-3 / (Stable Outlook)

Short Term International Local Currency

:

A-3 / (Stable Outlook)

Short Term National Local Rating

:

A-3 (Trk) / (Stable Outlook)

Sponsor Support

:

2

Stand Alone

:

B

Gap Güneydoğu Tekstil has a national and international reputation and maintains its production activities of high quality denim, gabardine and similar products on a covered area of 150.000m2 in Malatya as one of the leading denim export companies. Through the brand ‘Çalik Denim’, the Company continues to serve as a supplier of world-known brands through its rich product range and innovative activities closely following technology. The main shareholder, Çalık Holding A.Ş. (with a rating of BBB+(Trk) assigned by JCR Eurasia on May 12, 2015 on a long term national scale and BBB- long term international foreign currency scale), operates in the fields of energy, telecommunication, textile, construction, finance and mining. The Company was the first industrial investment of Holding and has managed to enhance its customer portfolio and achievements in R&D. The Company exports to approximately 40 countries and has continued to be a reliable supplier for global brands. The Company participates in a number of global exhibitions, providing the Company with opportunities to present its collections to its customers and establish close relations and has continued to differentiate itself in the fabric sector through collections including innovative fabrics and its use of recycling and organic production techniques and strengthened this position through its certificates in the related fields. Cotton, the major raw material need, is supplied from group company Çalık Pamuk, softening the risk level through intra-group synergy.

The relatively low cost of Far Eastern manufacturers increase price competition, while fluctuations in economy, sharp increase in foreign currency, continuous short position of Company, recession in Europe and volatility of raw material prices are all factors creating pressure on the Company. On the other hand, Gap Güneydoğu Tekstil’s reliable brand image based on a positive track record and product quality, innovation capability supported by R&D center listed as the 7th strongest in the Turkish Textile sector, enhanced sales network through expansion into different sectors and sustainable cooperation with global brands, broad product range produced in high-tech integrated modern production facilities, low level of impaired loans despite a high level of trade receivables supporting the precautious risk management and softening risk level through intra-group synergy and the growth potential and comprehensiveness created by intra-group companies and the main shareholder Çalık Group have contributed to the determination of the Company’s outlooks in the short and long term perspective as ‘Stable’ and the upgrade of Long Term National Grade to ‘BBB (Trk)’ with the opinion that the projects have a high realization capability and the stream of cash flows will be realized in accordance with the principal and interest payments. On the other hand, the Company plans to diversify its funding need through cash flows by issuing bonds depending on market situations.

Taking into account the growth and profitability contribution of planned investments, Çalık Holding A.Ş. is considered to have the willingness and experience to ensure long-term liquidity and equity within their financial capability when required and to provide efficient operational support to Gap Güneydoğu Tekstil San. ve Tic. A.Ş. Moreover, the balanced equity level, incentives arising from the market in which it operates and the probability of external support at a reasonable level with the continuity in the equity structure have been taken into account. In this regard, the Company's Sponsor Support Grade has been affirmed as (2) in JCR Eurasia Rating’s notation.

On the other hand, taking into account the Company’s sales volume, internal equity generation capacity, short term borrowing structure, low level of NPL’s positive contribution on asset quality and capital structure, the reputation from national and international markets, we, as JCR Eurasia Rating, are of the opinion that the Company has reached the level of adequate experience and facilities to manage the incurred risks on its balance sheet regardless of any assistance from the shareholders, provided that it improves its current customer level, efficiency and existing macroeconomic level in the market. Within this context, the Stand Alone grade of the Company has been affirmed as (B) in the JCR Eurasia Rating notation system, indicating an adequate level.

For more information regarding the rating results you may visit our internet site http://www.jcrer.com.tr or contact our analyst Ms. Merve HAYAT.

JCR EURASIA RATING

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