Baku, Azerbaijan, Dec. 10
By Emin Aliyev - Trend:
Standard & Poor's Ratings Services said today it assigned its 'B-' issue rating to the proposed senior secured notes to be issued by Azerbaijan-based conglomerate Baghlan Group FZCO's subsidiary, Baghlan Group Ltd. (not rated), under the parent's guarantee, S&P said today.
"The rating is subject to our review of the notes' final terms and conditions," S&P said. "If S&P does not receive final documentation within a reasonable time frame, or if the final documentation differs significantly from the draft we already reviewed, S&P reserves the right to withdraw or revise our ratings. Potential changes include, but are not limited to, utilization of bond proceeds, maturity, size and conditions of the bonds, financial and other covenants, security, and ranking."
The issue rating on the proposed notes reflects the long-term rating on Baghlan Group FZCO, because it will provide an unconditional and irrevocable guarantee on all payments due under the notes, S&P said.
"It also incorporates our understanding that the notes will be secured with pledges on Baghlan Group FZCO's stakes in oil and gas assets," S&P said. "These claims on assets will likely provide sufficient value for creditors and avoid a rating on the notes below the issuer credit rating, in our view.
S&P understands that Baghlan Group FZCO plans to refinance a major part of its currently outstanding debt with the proposed notes. After the planned refinancing, other liabilities will include limited secured debt and relatively sizable trade payables. Trade payables are mainly concentrated in Baghlan Group FZCO's subsidiary responsible for the road construction business, offset by large receivables for road construction, and in our view trade creditors do not have recourse to other assets of the group.
S&P rating on Baghlan Group FZCO reflects our assessment of its business risk as "vulnerable" and its financial risk as "significant."
"These assessments are adjusted for unfavorable capital structure and weak management and governance, as indicated by the group's lack of proactive liquidity management and risk management," S&P said.
Baghlan Group FZCO generated Azerbaijan manat (AZN) 52 million (about $67 million) of EBITDA in the first half of 2013, but we expect second-half 2013 EBITDA to be higher because of a recently completed residential property sale, although such sales are occasional rather than regular. On June 30, 2013, Baghlan reported total outstanding debt of AZN244 million.
S&P lowered rating of Azerbaijani diversified Baghlan Group FZCO company to 'B-' with negative outlook in early December.
The official exchange rate is 0.7843 AZN/USD on Dec. 10.