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Moody’s rate assets of SOFAZ at Ba1

2 May 2016 13:07 (UTC+04:00)
Moody’s rate assets of SOFAZ at Ba1

By Fatma Babayeva

Azerbaijan’s state oil fund was rated at Ba1 for the country’s long-term issuer and senior unsecured debt ratings by the international ratings agency Moody's Investors Service.

Moreover, Moody’s confirmed state-guaranteed senior unsecured debt rating of the Southern Gas Corridor's at Ba1, according to the report of the rating agency posted on its website on April 29.

The report left Azerbaijan's long-term and short-term foreign-currency bond and deposit ceilings unchanged at Ba1/NP and Ba2/NP, respectively.

Meanwhile, the long-term local-currency bond and deposit country ceilings also remained unchanged at Ba1.

In general, Ba1 rating signifies a low to moderate level of risk for investors or policyholders.

The Moody’s report reminded that Azerbaijan's large stock of foreign currency assets held by the SOFAZ and Azerbaijan's sovereign wealth fund which helps to cushion negative impacts on the Azerbaijan’s economy and government balance sheet and gives the country time to adjust itself to lower oil prices.

The government retains sizable fiscal buffers which could help it absorb oil shocks, especially SOFAZ's significant foreign currency assets. These fiscal buffers could help Azerbaijan cope with the challenges related to the continuing economic and banking crises, the agency reported.

The report further added that Azerbaijan’s government has room to let fiscal deficits widen during the periods of lower oil prices, economic recession and reduced fiscal revenues. The fund's assets are predominantly invested in high-grade liquid instruments.

In addition, the foreign currency assets of SOFAZ remained very huge, although it decreased by 9.5 percent to $33.6 billion in 2015, Moody's said.

The Moody's analysts stated that the volume of SOFAZ's assets are high as compared not only to the Azerbaijan's GDP and general government debt but also to other oil exporting countries' sovereign wealth funds, adding that SOFAZ's foreign assets account for roughly 100 percent of Azerbaijan's GDP forecast for 2016.

SOFAZ was established in 1999 with assets of $271 million. In accordance with SOFAZ's regulations, its funds may be used for the construction and reconstruction of strategically important infrastructure facilities, as well as, solving important national problems of Azerbaijan.

The main goals of the state oil fund is to accumulate resources and to place the fund’s assets abroad in order to minimize the negative impacts of oil on the economy, to prevent the Dutch disease to some extent in the country, to promote resource accumulation for future generations and to support current social and economic processes within the country.

Currently, 13.2 percent of the fund’s investment portfolio is placed in bonds of agencies and international organizations, 8 percent in sovereign debt securities, 20.8 percent in financial bonds, 44.2 percent in corporate bonds, 8.5 percent in short term commercial securities, and 1 percent in guaranteed bonds.

Around 7 percent of the investment portfolio is placed in deposits and monetary market tools, 3.1 percent in gold, 4.6 percent in real estate, 7.7 percent in assets, and 2.5 percent in investments in the projects.

So far, SOFAZ has funded many strategic projects for Azerbaijan including the construction of Baku-Tbilisi-Ceyhan pipeline, Baku-Tbilisi-Kars railway, Southern Gas Corridor, Oil and Gas processing and Petrochemical Complex, as well as, Samur-Absheron irrigation system, Oguz-Gabala water pipeline and State Program on education Azerbaijani youth abroad.


Fatma Babayeva is AzerNews’ staff journalist, follow her on Twitter: @Fatma_Babayeva

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