S&P revises credit ratings of Azerbaijani energy operator
Baku, Azerbaijan, Feb. 2
Standard & Poor's Ratings Services lowered its long- and short-term corporate credit ratings on electricity utility Azerenerji JSC to 'BB+/B' from 'BBB-/A-3', the company said Feb. 2.
The ratings remain on CreditWatch with negative implications, where the company placed them on Jan. 11, 2016.
The agency's rating action mirrors that on the sovereign rating, said the message.
"Our rating on Azerenerji reflects our assessment of an almost certain likelihood that Azerbaijan would provide timely and sufficient extraordinary support to the company in the event of financial distress, according to our criteria for government-related entities," said the message. "It also reflects our assessment of Azerenerji's stand-alone credit profile at 'ccc+'."
However, the company could reassess the likelihood of extraordinary financial state support for Azerenerji.
"We might assign a much weaker state support qualifier, resulting in a multiple-notch downgrade, if we saw that government control and support administrative mechanisms for Azerenerji had weakened," the message said.
The agency's current assessment of an almost certain likelihood of state support is based on its view of Azerenerji's critical role for and integral link with the Azerbaijan government.
"The state's track record of support to Azerenerji includes equity injections, debt guarantees, direct state borrowings, asset transfers, low-interest-rate loans, and financial aid provisions," said the message.
"Although Azerenerji is subject to various taxes, the government has a history of approving tax payment delays for the company," the agency said. "In addition, Azerenerji's payables of about $2 billion to the sole fuel provider, state-owned State Oil Company of Azerbaijan Republic, were written off with the government's consent in 2010. In the same year, Azerenerji's receivables of a similar amount from other state companies were also written off."
The negative CreditWatch signifies that the S&P could lower the ratings if it reassesses the likelihood of extraordinary financial state support for Azerenerji.
"We might assign a much weaker state support qualifier, resulting in a multiple-notch downgrade, if there is a lack of tangible financial aid available to the company aimed at supporting its financial profile, or if we saw that government control and support administrative mechanisms for Azerenerji had weakened," said the message. "We note, however, that the Ministry of Finance of Azerbaijan guarantees all of Azerenerji's debt."
Standard & Poor's 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 intentions and administrative capacity to provide support to Azerenerji.