Baku, Azerbaijan, Dec. 5
Standard & Poor's Ratings Services said today that it had lowered its long-term corporate credit rating on Azerbaijan-based conglomerate Baghlan Group FZCO (Baghlan) to 'B-' from 'B', and removed the rating from CreditWatch, where it was placed with negative implications on Nov. 13, 2013, on potential liquidity pressures. The outlook is now negative.
The downgrade reflects our view of Baghlan's lack of proactive liquidity management and inadequate risk management and disclosure, Standard & Poor's said.
"In October 2013, Baghlan was technically late on certain payments under its financial indebtedness, in the context of a weak payment culture in Azerbaijan's banking system and unusual liquidity issues during the country's long public holidays," Standard & Poor's said. "To our knowledge, by now all the payments due have been made, together with the late interest paid to Baghlan by the bank, and no event of default or cross-default was triggered. Still, in our view, it highlights the fact that, in this instance, Baghlan was unable to deal with the weaknesses of the local banking system in a timely manner."
Standard & Poor's is removing the rating from CreditWatch because, in our view, the recently completed sale of the residential property for Azerbaijani manat (AZN) 100 million (of which, we understand, AZN40 million has been already received and the rest is due in 2014) helps to address short-term liquidity pressures.
The negative outlook reflects potential risks to liquidity, if Baghlan faces further working capital squeezes (notably related to the road construction and to the remaining revenue from the residential property sale) or weaknesses in the local banking system.
"If as a result of these pressures liquidity becomes "weak" under our criteria, we could lower the rating," Standard & Poor's said. "If, however, Baghlan manages to refinance short-term debt, in the absence of other liquidity pressure or other adverse developments, we could consider revising the outlook to stable."