S&P affirms AzerEnergy company’s rating at BB
BAKU, Azerbaijan, Feb. 27
By Nargiz Ismayilova – Trend:
S&P Global Ratings has affirmed AzerEnergy company’s rating at BB, Trend reports referring to S&P.
“We expect AzerEnergy will continue to benefit from ongoing and extraordinary state support,” the message said. “We believe there is an extremely high likelihood that Azerbaijan would provide timely and sufficient extraordinary state support to AzerEnergy in the event of financial distress. Therefore, we include four notches of uplift in our 'BB' rating on the company to reflect this. We believe the government will continue to focus only on supporting AzerEnergy's operations and investments.”
“For social and political reasons, the government is unlikely to lift regulated tariffs to a level that would be sufficient to cover the full sum of AzerEnergy's operating expenditure, large capital expenditure (capex) needs, and debt service,” the message said.
“We understand that Azerbaijan's long-term road map for the energy sector proposes privatizing certain energy assets, even though we don't expect AzerEnergy will be privatized or significantly restructured in the next several years,” the message said. Therefore, we do not equalize our ratings on AzerEnergy with those on Azerbaijan (BB+/Stable/B). Rather, our long-term rating on AzerEnergy remains one notch lower than that on the sovereign.”
“Despite sizeable capex needs, we expect the company will avoid incurring any third-party debt without government guarantees,” the message said.
“Following a massive blackout in 2018 caused by an accident at Azerenergy's Mingachevir thermal power plant, the government reviewed the country's energy system and approved a rehabilitation plan,” the message said. “As a result, AzerEnergy's investment program increased materially and we forecast capex exceeding 1 billion manat (about $0.6 billion) in 2019-2020.”
“We expect the state will continue to co-finance AzerEnergy's capex via equity or direct state loans, and the company will avoid any third-party debt not guaranteed by the government,” the message said. “We also expect the Ministry of Finance will cover any liquidity shortages at the company if needed, including via co-funding capex or supporting debt service.”
“Thus, we continue to assess AzerEnergy's stand-alone credit profile at 'b-', taking into account ongoing state support,” the message said. “We also consider high risks related to the company's capital structure, since the debt portfolio is predominantly denominated in foreign currencies and the company remains exposed to the risk of exchange rate fluctuations. There are no substantial cash flows in foreign currencies to mitigate this risk.”
“If we were to lower our long-term rating on Azerbaijan by one notch, we would likely take a similar rating action on AzerEnergy, all else remaining equal,” the message said.