Research Update:

Morocco-Based Phosphate Fertilizer Producer OCP S.A. Rated 'BBB-'; Outlook Negative
Primary Credit Analyst: Lucas Sevenin, Paris (33) 1-4420-6661; lucas.sevenin@standardandpoors.com Secondary Contact: Christophe Boulier, London (44) 20-7176-6724; christophe.boulier@standardandpoors.com

Table Of Contents
Overview Rating Action Rationale Outlook Likelihood Of Extraordinary State Support Ratings Score Snapshot Related Criteria And Research Ratings List

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Research Update:

Morocco-Based Phosphate Fertilizer Producer OCP S.A. Rated 'BBB-'; Outlook Negative
Overview
Fertilizer producer OCP S.A. benefits from very large low-cost phosphate reserves, leading to favorable profitability. While we anticipate positive long-term demand trends, short-term weaknesses remain possible and the industry is highly cyclical. OCP has initiated a large capital expenditure program that will translate, under our 2013-2015 base case, into large negative cash flow after capital expenditures and weakening credit metrics. We are assigning our 'BBB-' long-term rating with a negative outlook to OCP. The negative outlook reflects our outlook on Morocco, given our view that OCP, as a government-related entity with close links to the state, cannot be rated higher than the sovereign.

Rating Action
On April 3, 2014, Standard & Poor's Ratings Services assigned its 'BBB-' long-term corporate credit rating to Morocco-based, phosphate rock, acid, and fertilizer producer, OCP S.A. The outlook is negative.

Rationale
The rating reflects our assessment of OCP's stand-alone credit profile (SACP) at 'bbb-'. This takes into account our view of the company's "satisfactory" business risk profile combined with a "significant" financial risk profile. As the Moroccan government owns nearly 95% of OCP and the company is very important for the state and the economy, we view OCP as a government-related entity (GRE). However, likely extraordinary government support does not currently lift the rating, since OCP's SACP is at the same level as our long-term rating on Morocco (BBB-/Negative/A-3). The main business risk factors supporting the rating are favorable profitability, very large, low-cost phosphate rock reserves, and supportive long-term demand trends. On the other hand, OCP has no access to cheap ammonia or sulfur, two major raw materials; it is exposed to country risk in Morocco and industry cyclicality; and capacity expansion is capital intensive and time consuming. From a financial standpoint, strong historical credit metrics are offset by large planned capital expenditures (capex), leading to negative free operating cash flow (FOCF, which is after capex under our definition) and weaker credit metrics under our 2013-2015 base-case scenario. Returns on capex

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Research Update: Morocco-Based Phosphate Fertilizer Producer OCP S.A. Rated 'BBB-'; Outlook Negative

and ensuing improvements in credit metrics are somewhat uncertain, owing to difficult-to-predict industry conditions. The company's policy of keeping net debt to EBITDA under 2.5x at all times is an important positive factor, but it might be challenged by an adverse industry cycle. OCP is credited with possessing over 75% of global phosphate rock reserves, ensuring several centuries of production. Its costs of production and transportation of rock to the ports--where almost all its fertilizer plants sit--are very low, given short distances and favorable geology, and will further decline once transportation, currently handled by rail, moves to pipelines. These factors underpin our assessment of OCP's "strong" competitive position. Low costs, combined with favorable industry conditions, led to an EBITDA margin of 35% or more in 2011 and 2012, and a return on capital of over 30%. The company benefits from a favorable 17.5% profit tax rate on exports, which represent the bulk of revenue. OCP pays no royalties, export taxes, or other special taxes. It also benefits from a state-granted monopoly on all phosphate reserves in Morocco, where all its mines are located. Long-term demand trends are favorable, reflecting increased fertilizer use in most developing countries, shrinking arable land, changing diets, and a growing global population. These strengths are mitigated by potential large swings in profits, mirroring a fluctuating industry supply and demand balance. In 2013, for example, EBITDA dropped by 45%. Big swings in demand are possible from one year or quarter to another, given a sensitivity to weather conditions, inventory levels and policies, price expectations, and Indian state subsidies and exchange rates, because India is the largest importer of phosphate products in the world. Capacity additions in the industry can also lead to oversupply. Additional constraints include high capex and long lead time to expand capacity, and OCP's lack of cheap access to sulfur and ammonia--two large cost components of phosphate fertilizers. Lastly, in our view, OCP is exposed to country risk in Morocco, since all its mines and almost all its plants are located there. While historical credit metrics up to year-end 2012 are very strong, with moderate total debt to EBITDA and a net cash position, the "significant" financial risk profile reflects our expectation of largely negative FOCF each year between 2013 and 2015, owing to a large capex plan of several billion dollars spread over the period. This plan aims to largely boost capacity, increase product flexibility, and further improve OCP's cost position. Except for cost-efficiency projects, returns, and thus improvement in credit metrics, are uncertain in our view, as they directly depend on industry conditions, both in terms of prices and volumes. Finally, pension liabilities--which we treat as debt-like--are sizable, at about $0.8 billion at year-end 2013. These financial risks are moderated by a favorable end-2013 balance sheet, with large cash balances, rating-commensurate total financial debt to EBITDA, and our assumption that the company will adhere to its financial policy articulated in 2011. The policy should result in limited dividends and, very importantly for the rating, net debt to EBITDA below 2.5x at all times. As a

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Research Update: Morocco-Based Phosphate Fertilizer Producer OCP S.A. Rated 'BBB-'; Outlook Negative

result, we would expect the company to reduce or delay capex from mid-2015 if industry conditions were less favorable than it assumes; capex before this date is largely committed. Our base case assumes: A U.S. dollar/Moroccan dirham (MAD) exchange rate of 8.5. Declining revenue in 2014, as softening of fertilizer prices is not completely offset by volume expansion. Revenue increasing by 8% in 2015, as prices improve and volumes expand, helped by OCP's new capacity and more favorable industry conditions. Supportive sulfur and ammonia prices. Benefits from efficiency projects, including the company's switch to a pipeline for its main producing "corridor." As a result, the EBITDA margin increasing to about 34% in 2014. We don't expect the EBITDA margin to materially change in 2015. As result, EBITDA reaches about $1.6 billion-$1.7 billion in 2014 and $1.8 billion in 2015, compared with $1.3 billion in 2013. Capex of $2.8 billion in 2014 and $2.2 billion in 2015, compared with $2.4 billion in 2013, largely tied to expansion. Moderate dividends, in line with OCP's financial policy. No acquisitions, disposals, or equity increases. Cash not falling below $200 million, or MAD1.7 billion, with cash above that level netted in our adjusted debt calculation (surplus cash adjustment). We view this $200 million threshold as prudent. Based on these assumptions, we arrive at the following credit measures: Funds from operations (FFO) to debt around 27% in 2014, and roughly 25% in 2015, compared with 40% in 2013. Debt to EBITDA at 2.7x in 2014 and 3.0x in 2015, versus 1.9x in 2013. Negative discretionary cash flow (FOCF after dividends) of about $2 billion in 2014 and about $1 billion in 2015. Given uncertain industry conditions and possible large fluctuations in prices, we look at the impact on credit metrics of various price assumptions.

Liquidity
We classify OCP's liquidity as "adequate." We anticipate that liquidity sources will cover needs by more than 1.2x in 2014 and 1.0x in 2015, because we assume OCP will obtain significant new funding in the short term. As part of its financial policy, OCP aims to keep a significant liquidity cushion. We factor this into the ratings. Our assessment also incorporates our view that OCP will, well in advance, obtain new funding and renew its committed bank lines to ensure forecast liquidity needs are amply met. We also factor in our view that the company will maintain ample financial covenant leeway. Very positively, we note that covenants are tested only once, at year-end.

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Research Update: Morocco-Based Phosphate Fertilizer Producer OCP S.A. Rated 'BBB-'; Outlook Negative

In our base case, we estimate the following main liquidity sources: Cash of $1.3 billion on Dec. 31, 2013; FFO of $1.3 billion in 2014 and $1.3 billion in 2015; Availability under long-term committed bank lines of over $0.9 billion; and Large new funding in the near term. In our base case, we estimate the following main liquidity needs: Large capex, as detailed above; Debt payments of $0.7 billion in 2014 and $0.4 billion in 2015; and Moderate dividends over 2014-2015, in line with the company's financial policy.

Outlook
The negative outlook reflects our outlook on Morocco. We assess that OCP, as a GRE that has close links to Morocco, cannot be rated above the sovereign. We would revise the outlook to stable following the same action on the sovereign. Given the currently large expansion phase, we see adjusted FFO to debt of about 25% and materially negative FOCF as rating-commensurate.

Upside scenario
We do not see rating upside in the short term, given OCP's large capex plan and the impact we estimate on its net debt over 2014-2015 under our base-case scenario. In addition, the rating is constrained by that of the sovereign.

Downside scenario
We would lower the rating on OCP following a downgrade of Morocco. We would lower the SACP on OCP under the following circumstances: If net debt to EBITDA well surpassed the 2.5x maximum stated in the company's financial policy, absent any expectation of rapid improvements; if financial covenant leeway--currently strong--waned, or if committed bank lines were not renewed and funding was not secured sufficiently ahead of need (about 6-9 months); or if taxes were to increase, even though we do not envisage this in our base-case scenario. That said, in such a scenario, and assuming the sovereign rating and our assessment for extraordinary state support remained the same, OCP's rating would benefit from one or more notches of uplift for extraordinary state support. The number of notches would depend on the SACP, as detailed in our GRE criteria.

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Research Update: Morocco-Based Phosphate Fertilizer Producer OCP S.A. Rated 'BBB-'; Outlook Negative

Likelihood Of Extraordinary State Support

We consider OCP to be a GRE, given the Moroccan government's nearly 95% ownership of the group and OCP's very close links with, and importance to, the state. The ratings on OCP are constrained by the long-term rating on Morocco. We consider there is a "very high" likelihood of extraordinary state support, based on our view of OCP's: "Very important" role. Although OCP operates essentially as a profit-seeking commercial enterprise in a competitive environment, we believe that its default or credit stress, leading to a disruption of its activities, would have a significant systemic impact both for the Moroccan economy and Morocco's standing in the financial markets; and "Very strong" link with the government. We view the government as a strong and stable shareholder. It has a track record of providing support to its GREs in most circumstances. We understand the government is not contemplating the privatization of OCP in the medium term. The company's board of directors is mostly comprised of government representatives. A considerable deterioration in OCP's creditworthiness would significantly affect the government's reputation, because the Moroccan government and OCP are publicly associated through strong political involvement and a high degree of government oversight.

Ratings Score Snapshot

Corporate Credit Rating: BBB-/Negative/-Business risk: Satisfactory Country risk: Moderately high Industry risk: Moderately high Competitive position: Strong Financial risk: Significant Cash flow/Leverage: Significant Anchor: bbbModifiers Diversification/Portfolio effect: Neutral (no impact) Capital structure: Neutral (no impact) Liquidity: Adequate (no impact) Financial policy: Neutral (no impact) Management and governance: Satisfactory (no impact) Comparable rating analysis: Neutral (no impact) Stand-alone credit profile: bbb Sovereign rating: BBB-/Negative/A-3 Likelihood of government support: Very high

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Research Update: Morocco-Based Phosphate Fertilizer Producer OCP S.A. Rated 'BBB-'; Outlook Negative

Related Criteria And Research

Related Criteria
Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Jan. 2, 2014 Key Credit Factors For The Commodity Chemicals Industry, Dec. 31, 2013 Corporate Methodology, Nov. 19, 2013 Corporate Methodology: Ratios and Adjustments, Nov. 19, 2013 Ratings Above The Sovereign--Corporate And Government Ratings: Methodology And Assumptions, Nov. 19, 2013 Methodology: Management And Governance Credit Factors For Corporate Entities And Insurers, Nov. 13, 2012 Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010 2008 Corporate Criteria: Rating Each Issue, April 15, 2008

Related Research
Sovereign Ratings And Country T&C Assessments, March 28, 2014 Research Update: Morocco Foreign Currency Ratings Affirmed; Local Currency Ratings Lowered To 'BBB-/A-3'; Outlook Remains Negative, Nov. 15, 2013

Ratings List
OCP S.A. Corporate Credit Rating BBB-/Negative/--

Additional Contact: Industrial Ratings Europe; Corporate_Admin_London@standardandpoors.com

Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at spcapitaliq.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow 7 (495) 783-4009.

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