Azernews.Az

International rating agency Moody's Investors Service has assigned a provisional Ba1 rating to the approximately $1.0 billion worth of notes to be issued by the Azerbaijani state oil company SOCAR. Outlook on the rating is stable, the agency reported.

SOCAR will use the proceeds of the loans for general corporate purposes, including refinancing its existing indebtedness and funding its upstream and downstream operations.

"The (P) Ba1 rating we have assigned to the notes is in line with SOCAR's corporate family rating, reflecting the equal ranking of the notes with other debt in the company's overall capital structure," said Julia Pribytkova, a Moody's Vice President - Senior Analyst and lead analyst for SOCAR.

The (P) Ba1 rating assigned to the notes, which is at the same level as the corporate family rating (CFR), reflects that they have equal ranking in the company's overall capital structure as its other debt, mainly comprising unsecured bank debt and a $500 million Eurobond issued in February 2012.

The Ba1 CFR reflects SOCAR's status as a fully integrated oil and gas company that enjoys either a share in, or a full control over, the country's oil and gas pipelines for the domestic and export markets.

SOCAR acts as the agent for implementing the government's strategy in the energy sector and its social policies. The company's activities are largely funded by the state. SOCAR's susceptibility to government interference presents a challenge for its credit quality, Moody's maintains.

The noteholders will benefit from standard debt protection covenants, such as limitation on distributions of net income, limitation on asset disposal, negative pledge, restrictions on mergers and reorganizations and a requirement to maintain minimum tangible net worth.

The stable outlook on the rating reflects SOCAR's robust financial metrics, supported by the favorable oil market environment; and the company's operating performance outlook.

Moody's said it would consider upgrading SOCAR to an investment-grade category if the company materially improves its overall information disclosure; demonstrates evidence of managing its reinvestment risk via efficient reserves additions; provides greater clarity with regard to its strategy, financing and investment policies; and demonstrates solid liquidity management.

SOCAR is a 100 percent state-owned national energy company in Azerbaijan. In the 12 months that ended June 30, 2012, SOCAR generated about $15.2 billion in revenue, $3.2 billion in earnings before interest, taxes, depreciation, and amortization, or EBITDA (as adjusted by Moody's), and $1 billion in net income. SOCAR has generated positive free cash flow since 2009.