Moody's Investors Service (Moody's) has confirmed the Ba1 corporate family rating (CFR), Ba1 senior unsecured notes rating and Ba1-PD probability of default rating (PDR) of State Oil Company of the Azerbaijan Republic (SOCAR). The outlook on the ratings is negative.
"Our decision to confirm SOCAR's ratings factors in the company's high level of vertical integration into refining and trading operations, allowing it to maintain adequate credit metrics for its rating category in a "lower-for-longer" oil price environment," the agency said. "SOCAR's rating also benefits from continued strong support from the government of Azerbaijan as the country's largest employer and tax contributor."
According to the statement, SOCAR's Ba1 rating takes into account: the key role that the company plays in the oil and gas sector of Azerbaijan and the national economy; the rating agency's estimates of SOCAR's stable oil and gas production in 2016-17; robust liquidity profile underpinned by substantial cash balances and comfortable debt maturity schedule; and its close linkages with the Azerbaijan's government, which has accumulated substantial reserves.
"The rating also reflects the rating agency's conservative view on potential challenges in maintaining stable production over longer-term if upstream capex is sustainably kept at a low level; the company's ability to efficiently replenish its oil reserves; and the low oil price environment and regulated prices for domestically produced oil products in Azerbaijan, which will continue to negatively impact the company's profitability and cash flow metrics," the statement said.
According to the agency, SOCAR also participates in all international consortia developing new oil and gas projects in Azerbaijan. The largest of these are the Azeri Chirag Gunesli (ACG) oil project and the Shah Deniz (SD) gas project, and their respective transportation routes, Baku-Tbilisi-Ceyhan oil pipeline (BTC) and South Caucasus gas pipeline (SCP). In 2015, SOCAR reported revenue of approximately $31.5 billion (including trading operations) and EBITDA of $3.1 billion.
Given the Ba1 local-currency rating and sovereign ceiling of the government of Azerbaijan, upward pressure on SOCAR's ratings is unlikely at present.