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Moody’s releases rating indices for SOCAR

6 May 2016 11:02 (UTC+04:00)
Moody’s releases rating indices for SOCAR

By Fatma Babayeva

International rating agency Moody's Investors Service has released its rating indices for Azerbaijan’s state-owned oil and gas company SOCAR.

The agency assessed SOCAR’s corporate family rating at Ba1, senior unsecured notes rating at Ba1 and probability of default rating at Ba1-PD. Overall, the outlook on the ratings is negative.

Moody’s decision to confirm SOCAR's ratings factors on the company's high level vertical integration into refining and trading operations allows the company to maintain adequate credit metrics for the given categories in a "lower-for-longer" oil price environment.

SOCAR's rating also benefits from continued strong support by the state as the country's largest employer and tax contributor.

The state energy company's Ba1 rating by Moody’s takes into account the key role of the company in the oil and gas sector and national economy of Azerbaijan, the estimates by the agency on SOCAR's stable oil and gas production during 2016-17, its robust liquidity profile underpinned by substantial cash balances and comfortable debt maturity schedule, as well as, its close linkages with the Azerbaijani government.

In addition, the rating also reflects Moody's conservative view on the potential challenges in maintaining stable production in a longer-term if the upstream cap-ex is kept at a sustainably low level, the company's ability to efficiently replenish its oil reserves, as well as, low oil price environment and regulated prices for domestically produced oil products in Azerbaijan that will continue to negatively impact the company's profitability and cash flow metrics.

In the statement, the agency also drew attention to SOCAR’s participation in all international consortia that develops new oil and gas projects in Azerbaijan.

The largest of these consortia are the Azeri Chirag Gunesli oil project and the Shah Deniz gas project, and their respective transportation routes which are Baku-Tbilisi-Ceyhan oil pipeline and South Caucasus gas pipeline.

In 2015, SOCAR reported its revenues at approximately $31.5 billion including trading operations and EBITDA at $3.1 billion.

Given to the Ba1 local-currency rating and sovereign ceiling of the Azerbaijan’s government, upward pressure on SOCAR's ratings is unlikely for now.

SOCAR is involved in exploring oil and gas fields, producing, processing, and transporting oil, gas, and gas condensate, marketing petroleum and petrochemical products in domestic and international markets, as well as, supplying natural gas to industry and the public in Azerbaijan.

Three production divisions, one oil refineries and one gas processing plant, a deep water platform fabrication yard, two trusts, one institution, and 23 subdivisions are operating as corporate entities under SOCAR.

It has representative offices in Georgia, Turkey, Romania, Austria, Switzerland, Kazakhstan, Great Britain, Iran, Germany and Ukraine, as well as, trading companies in Switzerland, Singapore, Vietnam, Nigeria, and other countries.

As a side note, recently, Moody’s confirmed both Azerbaijan’s state oil fund SOFAZ (for the country’s long-term issuer and senior unsecured debt ratings) and the Southern Gas Corridor's (for state-guaranteed senior unsecured debt rating) at Ba1 as well.

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