Azernews.Az

Friday March 29 2024

Fitch forecasts $7bn investments on SOCAR

20 April 2020 19:28 (UTC+04:00)
Fitch forecasts $7bn investments on SOCAR

By Akbar Mammadov

Capital investments in the State Oil Company of Azerbaijan (SOCAR) for 2019-2022 are estimated at $7 billion, International Rating Agency Fitch has reported.

Earlier, the agency estimated capital investments of the State Oil Company for 2019-2022 at the level of $8.2 billion. The change in the forecast for the volume of capital investments is due to a decrease in Fitch's average oil price.

"The company's capital investments in 2019-2022 will amount to 12 billion manat with a stable rate of 1.7 manat / 1USD during this period," the agency said in a press release.

According to Fitch forecasts, the average oil price in 2020 will be $35 per barrel (January forecast $62.5), $45 per barrel in 2021 ($60), $53 per barrel in 2022 ($57.5).

Fitch analysts note that as of December 31, 2019, SOCAR's liquidity amounted to about $4.6 billion compared to $2.7 billion of short-term debt and the current part of long-term borrowings.

"Liquidity included cash and cash equivalents in the amount of $4 billion, as well as $589,5 million of unused credit lines related to modernization at the Heydar Aliyev refinery. The bulk of short-term debt was formed in US dollars and is associated with the trading unit of SOCAR, the Turkish petrochemical subsidiary Petkim and the parent company. Liquidity may be under some pressure due to the forecast for negative free cash flow for 2020-2021. Nevertheless, we expect that the state will cover any liquidity gaps through capital injections," the agency’s experts say.

According to Fitch, in 2019-2022 SOCAR's investments in joint ventures will amount to $471,5 million.

In the meantime, Fitch Ratings has graded SOCAR at "BB +", the agency said in a press release.

It should be noted that the rating outlook is changed to "negative" from "stable", and SOCAR's short-term IDRs are affirmed at 'B', and a priority unsecured rating at 'BB +'.

"The rating action reflects a recent similar action with respect to the sovereign rating of Azerbaijan (BB + / Negative), since SOCAR is wholly owned by the state," the report says.

According to the agency’s estimates, SOCAR will reduce oil production in 2020 due to Azerbaijan’s obligations under the new OPEC + deal. In 2018, SOCAR's net production amounted to 256 thousand barrels per day of oil equivalent (barrels of oil). For SOCAR, the oil price at the level of $23 per barrel is considered profitable. In particular, the agency predicts a decline in production by SOCAR this year by 11%, and expects production to recover at a level higher than in 2018 by 2022.

According to Fitch Ratings, taxes paid by SOCAR amounted to about 10% of the state budget of Azerbaijan in 2018, revenues from the sale of the state’s share in profitable oil to be transferred to the State Oil Fund of the Republic of Azerbaijan (SOFAR) amounted to almost 80% of state revenues (65% in 2017). This growth was due to an increase in world oil prices in 2018. The government, in turn, guarantees 9% of SOCAR's debt and provides capital injections to cover the cash deficit.

In addition, the agency clarifies that SOCAR's oil trading operations amount to 1.5 million bps. According to Fitch, the average price of Brent crude oil in 2020 will be $35 per barrel, in 2021 - $45, in 2022 - $53.

---

Akbar Mammadov  is AzerNews’ staff journalist, follow him on Twitter: @AkbarMammadov97

Follow us on Twitter @AzerNewsAz

Loading...
Latest See more