JCR Eurasia Rating evaluated Palen Enerji Doğalgaz Dağıtım Endüstri ve Ticaret A.Ş. and assigned ratings of ‘BBB+ (Trk)’ on the Long Term National Scale along with a ‘Positive’ outlook. On the other hand, the Long Term International Foreign Currency Rati

JCR Eurasia Rating evaluated “Palen Enerji Doğalgaz Dağıtım Endüstri ve Ticaret A.Ş.” (Palen) in an investment-level category on a national level and

assigned ratings of ‘BBB+(Trk)’ on the Long Term National Scale along with a ‘Positive’ outlook. On the other hand, JCR Eurasia Rating assigned the Long

Term International Foreign Currency Rating as ‘BB+’ along with a ‘Stable’ outlook. Other notes and details of the ratings are given in the table below:

Long Term International Foreign Currency : BB+ / (Stable Outlook)

Long Term International Local Currency : BBB- / (Stable Outlook)

Long Term National Local Rating : BBB+ (Trk) / (Positive Outlook)

Short Term International Foreign Currency : B / (Stable Outlook)

Short Term International Local Currency : A-3 / (Stable Outlook)

Short Term National Local Rating : A-2 (Trk) / (Positive Outlook)

Sponsor Support : 2

Stand Alone : B


Palen was issued with the license for natural gas distribution in the Erzurum and Ilıca regions for a 30-year period beginning from February, 2004 following

the tender held in August, 2003 by the Energy Markets Regulatory Authority (EMRA). The Company exhibited a stable growth trend since the time of

establishment and managed to consistently increase the scale of its investments, number of subscribers and sales revenues in line with EMRA tariffs.

Established in 1984, Palmet Enerji A.Ş. which is one of the leading integrated energy groups in Turkey operating in the fields of inner city gas distribution,

imports and wholesale of natural gas, electricity production and trade along with energy infrastructure is the qualified shareholder of the Company which

currently doesn’t have any affiliates or subsidiaries. Furthermore, Erzurum Metropolitan Municipality, the principal local authority, in the Company’s service

region currently holds a 10% share in its ownership structure in line with EMRA regulations.

The Company which primarily relies on external resources to fund its expanding operational volume and investments, gradually reduced its foreign currency

risk and short position arising from its financial liabilities and as such aims to reduce the negative effects of ongoing market volatility on its past profitability

performance in the upcoming period. The high level of operational expenses observed in the gas distribution sector and supply-side risks that could be caused

by import dependency, the political uncertainty created by upcoming election periods and the rise in terrorist activity and the associated deterioration in the

investment climate, the depreciation in the value of the Turkish Lira brought about by ongoing volatility and the maintenance of the effective status of BOTAS

in the field of gas supply despite ongoing liberalization in the distribution market are the major factors that lead to increase in risk levels. However, the

sustainability of cash flow provided by the Company’s monopoly status in its licensed service region, the determination of asset returns by regulatory

authorities taking into account the fixed investments, high collection rates inherent in the sector, the contribution to working capital levels by the past bond

issuance and the managerial experience and know-how provided by Palmet Enerji underlie the basis in the assignment of the Company’s Long Term National

Ratings as ‘BBB+(Trk)’.

The natural gas consumption which maintained its stable growth in line with Turkey’s rising population, urbanization and developing economy, the ongoing

liberalization in the gas distribution sector, the attained level of penetration in the service region and the future growth potential of consumption that

remains above the national average and its expected contribution to the Company’s operating volume, the recently realized increase in paid-in capital,

projected bond issuance and the conformity of budget projections with market data and the potential contribution to the Company’s market effectiveness

and balance sheet composition by the resources derived from the planned Initial Public Offering of the recently constructed Palmet Gas Group as a result of

restructuring, constitute the principle factors that underlie the assignment of the outlook attached to the short and long term national ratings as ‘Positive’.

Taking into account the long operational track record of Palmet Enerji, the Company’s qualified shareholder, vertically integrated structure and know-how,

capitalization level and country-wide investments, asset base supported by regulatory authorities and shareholder structure containing local authorities, the

Company’s ‘Sponsor Support’ grade has been assigned as (2) on JCR Eurasia Rating’s notation scale, indicating a moderate level. On the other hand,

regardless of the support provided at the shareholder or system level, taking into consideration the steady expansion in the operating volume, asset quality,

monopoly status in the service region, successful bond issuance, profit retention policies and presence of a skilled management team, the ‘Stand Alone’ has

been assigned as (B) on JCR Eurasia Rating’s notation scale, denoting a ‘Strong’ level.

For more information regarding the rating results, you may visit our internet site http://www.jcrer.com.tr or contact our analysts Mr. Gökhan İYİGÜN and



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