BAKU, Azerbaijan, April 29
By Tamilla Mammadova - Trend:
Fitch Ratings (Fitch) has revised the Outlook on Long-Term Foreign-Currency Issuer Default Rating (IDR) of Georgian Oil and Gas Corporation (GOGC) from Stable to Negative, and affirmed the IDR at 'BB', Trend reports citing the Fitch's report.
The outlook revision follows Georgia's sovereign rating action (BB/Negative), as per Fitch's Government-Related Entities (GRE) rating criteria.
Fitch rates GOGC by applying a one-notch uplift to its standalone credit profile (SCP) of 'bb-' to arrive at the same rating as Georgia, the ultimate source of potential support to the company. The Negative Outlook also captures GOGC's weak liquidity.
"GOGC's SCP is supported by its monopoly position in oil and gas transportation in Georgia and its role as the state's agent in the power sector. We expect pressure on profitability of the gas-supply segment due to significant social gas prices drop as a result of the COVID-19 pandemic with leverage peaking in 2022 on higher capex, but still within rating sensitivities," said Fitch.
According to Fitch, at the end of March 2020, GOGC's cash and cash equivalents were $50 million, which, together with available unused credit facilities of $45 million from local banks expiring at the end of January 2021, are not sufficient to cover short-term maturities of $250 million that is fully represented by the eurobonds due in April 2021.
"Fitch expects GOGC's funds from operations (FFO) net leverage to increase to 3.5x in 2022, which is our negative rating guidance due to peaking capex. This includes two major projects as Gardabani-3 TPP (to be operated from 2023) and underground gas storage (UGS, preliminary expected to be launched from 2024), which is expected to be debt funded," Fitch noted.
However, most of the capex is flexible and can be either reduced or rescheduled depending on a number of factors including GOGC's performance, availability and structure of funding, said the report.
"We expect GOGC to maintain credit metrics commensurate with the current rating over 2020-2024, despite capex peaking in 2022. GOGC has limited foreign-exchange (FX) exposure, with most revenue (except income from rent of gas pipelines of about 5 percent as of end-2019), about 90 percent of capex and 80 percent of costs are denominated in US dollars," the report said.
This mitigates the fact that almost all of GOGC's debt is denominated in dollars.
"We view the effect on GOGC's financial metrics as only temporary and expect its credit metrics to weaken marginally in 2020 as a result of the lari devaluation, everything else being equal," Fitch added.
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