Baku, Azerbaijan, Dec. 15
By Maksim Tsurkov - Trend:
Standard & Poor's Ratings Services has lowered its long-term corporate credit rating on state-owned railway operator Azerbaijan Railways CJSC (ADY) to 'BB-' from 'BB+' Dec.14 and placed the rating on CreditWatch with negative implications, the message of the agency said Dec.14.
This rating reflects the agency's understanding that ADY was three business days late on a payment on one of its commercial loans in November due to a delay in approval of another loan by the Azerbaijani ministry of finance, aimed at covering its liquidity gap.
As a result, the agency considers that there is a lack of transparency in communication and provision of information from ADY and revises downward the stand-alone credit profile (SACP) to 'b-', according to the agency. S&P now assesses ADY's liquidity as "less than adequate".
As a result of the delayed payment, S&P has revised downward its assessment of the link between ADY and the government to "strong" from "very strong", as the agency no longer has sufficient evidence that processes and procedures are in place to enable effective governance, monitoring, and control over the structure.
"We have consequently lowered our assessment that the government would provide timely and sufficient extraordinary support to ADY to "high" from "very high"," said the agency. "We continue to assess ADY's role to the government as "very important"."
The negative CreditWatch placement reflects that S&P could lower the rating by two notches to 'B' if the transfer of ADY to the cabinet of ministers of Azerbaijan does not result in improved governmental oversight.
"This could lead us to lower our assessment of the government's link to ADY and to revise the likelihood of extraordinary support to "moderately high" from "high", all else being equal," said the agency. "The CreditWatch placement also reflects the possibility that we could lower the ratings by multiple notches if the likelihood of a non-payment increases, even if driven by administrative reasons rather than by ADY's capacity to service its debt."
S&P expects to resolve the CreditWatch within the next 90 days, during which time the agency expects to gain a clearer view of the government's administrative capacity to provide support to ADY following its expected transfer to the Azerbaijani cabinet of ministers. S&P would also seek to understand the company's new strategy, financial policy, and liquidity position.
Follow the author on Twitter: @MaksimTsurkov