Fitch Ratings has revised the Outlook on State Oil Company of the Azerbaijan Republic's (SOCAR) Long-Term Issuer Default Rating (IDR) to Stable from Negative and affirmed the IDR and senior unsecured rating at 'BB+'. The Recovery Rating is 'RR4', APA-Economics reports citing Fitch.
The rating actions follow the revision of the Outlook on the sovereign rating of Azerbaijan (BB+/Stable). SOCAR is fully owned by the state and its rating is equalised with that of Azerbaijan under Fitch's 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.
We assess SOCAR's Standalone Credit Profile (SCP) at 'b+', with high leverage being the main constraint.
Leverage High but Under Control: SOCAR's 1H20 performance was better than expected in our previous rating case, with broadly flat EBITDA yoy, as weaker performance in the upstream segment was partially offset by stronger trading operations. We estimate 2020 EBITDA will have only moderately fallen yoy and should rebound in 2021, on stronger international oil prices and increased regulated fuel prices since January 2021. We expect funds from operations (FFO) net leverage to remain below 4.5x over 2021-2023, materially below our 6x downgrade sensitivity, and in line with the 'b+' SCP.
In addition, SOCAR has stakes in some other major energy projects promoted by the state, such as the Southern Gas Corridor (SGC).