SOCAR’s rating is equalised with that of Azerbaijan (BB+/Stable) under Fitch Ratings’ Government-Related Entities (GRE) Rating Criteria

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SOCAR’s rating is equalised with that of Azerbaijan (BB+/Stable) under Fitch Ratings’ Government-Related Entities (GRE) Rating Criteria

Fitch assesses SOCAR’s Standalone Credit Profile (SCP) at ‘b+’, with high leverage being the main constraint.

Photo: SOCAR

State Oil Company of the Azerbaijan Republic (SOCAR) is fully owned by the state and its rating is equalised with that of Azerbaijan (BB+/Stable) under Fitch Ratings’ Government-Related Entities (GRE) Rating Criteria. This is underpinned by state support provided to the company in the form of financial guarantees, cash contributions and equity injections, as well as SOCAR’s social functions and its importance as a state vehicle for the development of oil and gas projects.

Fitch assesses SOCAR’s Standalone Credit Profile (SCP) at ‘b+’, with high leverage being the main constraint.

Leverage High but Under Control: SOCAR’s 2020 performance was fairly strong despite weak international oil prices due to regulated domestic prices and strong trading operations. We expect SOCAR’s earnings to rebound in 2021 on stronger international oil prices and increased regulated fuel prices since January 2021. Осшъг expectя funds from operations (FFO) net leverage to remain below 5x in 2021-2024, materially below our 6x downgrade sensitivity, and in line with the ‘b+’ SCP.

Supportive Business Profile: SOCAR’s ‘b+’ SCP considers its high leverage, but also its fairly high production of 277,000 barrels of oil equivalent (boe) per day and robust oil proved reserve life of 12 years.

SOCAR’s unit profitability measured as consolidated FFO to total upstream production was healthy at USD18/boe in 2020, broadly in line with that of integrated oil majors such as Royal Dutch Shell plc (AA-/Stable; USD18/boe). The upstream segment is SOCAR’s key profit driver.

Close Links with the State: SOCAR’s rating is equalised with that of the state given their strong ties under Fitch’s GRE Rating criteria. We assess status, ownership and control and support record factors as well as socio-political and financial implications of a GRE’s default as ‘Strong’ resulting in a score of 30.

As the Long-term Issuer Default Rating (IDR) reflects the combination of the strength of state linkage and SOCAR’s SCP, a deterioration of the SCP on a sustained basis may result in the Long-term IDR being notched down from that of the sovereign. Most oil and gas projects in Azerbaijan operate under production-sharing agreements, in which SOCAR has a minority stake and where it also represents the state and is involved in marketing the latter’s share of crude oil and gas (profit oil). In addition, SOCAR has stakes in some other major energy projects promoted by the state, such as the Southern Gas Corridor (SGC).

Source: https://www.fitchratings.com/research/corporate-finance/state-oil-compa…