The Azerbaijani government guarantees most of the Azerenerji's debt as of the end of 2017 and, in line with the Cabinet of Ministers' decision, will provide equity injections to Azerenerji to support repayments of foreign currency loans over 2018-2025, S&P reported.
According to the agency, the government so far has been able and willing to cover Azerenerji's liquidity shortages, including the maturing debt and interest payments: ‘Under our base case, we expect this to continue. We understand that the government has budgeted sufficient financial injections to cover the company's debt and interest payments due in 2018, if needed. We believe that the Ministry of Finance closely monitors Azerenerji's debt payments and that Azerenerji, similar to other government-related entities (GREs) in the country, cannot incur any new borrowings without the government's approval. Although the government provides financial support to cover the company's ongoing debt payments and monitors cash collection, it still tolerates high debt at Azerenerji, and funding of enlarged capex remains uncertain. Therefore, we do not equalize the ratings on Azerenerji with those on Azerbaijan (BB+/Stable/B). Instead, we continue to apply a one-notch downward adjustment from the sovereign rating to arrive at our issuer credit rating on Azerenerji’.
The agency says that the negative outlook on Azerenerji reflects continuing uncertainty about the government's long-term strategy to provide ongoing and extraordinary support to Azerenerji: ‘In particular, we will focus on the funding of the enlarged investment program, sustainability of cash collection from Azerishiq, and tariffs that provide cost pass-through, as well as general government's tolerance to relatively high debt. Any new debt issued without guarantees would in our view signal weakening government support. Also, any weakening in the government's mechanisms to monitor the company's liquidity position and provide financial support to cover liquidity shortages may also put pressure on the rating. We could downgrade Azerenerji if we considered that the government's willingness and ability to support the company in cases of financial stress had weakened’.