Moody's Investors Service ("Moody's") has today upgraded the ratings of State Oil Company of the Azerbaijan Republic (SOCAR) to Ba1 from Ba2, including its corporate family rating (CFR) and senior unsecured rating, Moody's told APA-Economics.
Concurrently, Moody's has upgraded SOCAR's baseline credit assessment (BCA) to ba3 from b1 and its probability of default rating (PDR) to Ba1-PD from Ba2-PD. The rating agency has also changed the company's outlook to stable from positive.
Today's rating action is in line with the sovereign rating action and reflects SOCAR's strong credit linkages with the state as well as its significant exposure to Azerbaijan's operating and macroeconomic environment.
The upgrade of Azerbaijan's ratings reflects improved policy effectiveness in recent years which translates into improved fiscal management and increased capacity to absorb future shocks. Despite the pandemic, fiscal metrics have remained strong and are improving quicker than expected thanks to prudent fiscal management amid an economic rebound and high hydrocarbon prices. Moody's expects the government's anti-inflation measures and the Central Bank of the Republic of Azerbaijan's (CBAR) proactive macroeconomic policy to contain inflation risks exacerbated by the Russia/Ukraine crisis. As a result, Moody's expects that operating and macroeconomic environment for SOCAR will gradually improve, supporting its credit profile.
Given that SOCAR is 100% state owned, Moody's applies its Government-Related Issuers (GRI) methodology to determine the company's CFR. SOCAR's Ba1 CFR incorporates (1) the company's BCA of ba3, which measures its standalone credit strength, excluding any extraordinary government support; (2) the Ba1 foreign currency rating of the Government of Azerbaijan, with a stable outlook; (3) the very high default dependence between the state and the company; and (4) the high probability of the government providing support to the company in the event of financial distress.