| Moody's assigns first-time Ba1 rating to Socar |
|
17/02/2010 13:43 (716 Day 21:07 minutes ago) | |||||
|
The FINANCIAL -- Moody's Investors Service (Moody's) has on February 17 assigned Ba1 corporate family (CFR) and Probability of Default (PDR) ratings to the State Oil Company of the Azerbaijan Republic ("SOCAR").
The company operates through 18 subsidiaries/business units and nearly 50 joint ventures, operating companies and associates. It also participates in all international consortia developing new oil and gas projects in Azerbaijan. The largest of these are the BP-operated Azeri Chirag Gunesli (ACG) oil project and the Shah Deniz gas project, and their respective transportation routes, Baku-Tbilisi-Ceyhan oil pipeline (BTC) and South Caucasus gas pipeline (SCP). It holds a 51% share in Petkim, Turkey's sole petrochemical producer.
Given that SOCAR is 100% owned by the State, Moody's has determined the company's CFR by applying the Joint Default Analysis, our methodology for government-related issuers (GRIs). Our Ba1 rating of SOCAR reflects the following combination of factors:
∙ A Baseline Credit Assessment (BCA) -- which measures the company's fundamental credit strength excluding any government support -- of 13 (expressed on a scale of 1 to 21, in which a BCA of 13 corresponds to a Ba3 rating)
∙ The Ba1 local currency rating of the Azerbaijan government
∙ Very High dependence
∙ High support
The high government support assumption reflects Moody's estimation of the likelihood that the government of Azerbaijan would be willing and able to provide direct and/or indirect financial support to SOCAR , if necessary, and would thus attempt to prevent a default on its financial obligations. Very High dependence is based on the fact that the economy and the budget of Azerbaijan are highly dependent on oil and oil-related revenues, thereby making both, the Republic and the company reliant on similar sources of revenue and susceptible to similar risk factors.
SOCAR's BCA of 13 incorporates the medium scale of the company's reserves and production base, and very strong financial metrics. It also reflects the fact that SOCAR is a fully integrated oil and gas company that enjoys either a share in, or a full control over, the country's oil and gas pipelines for the domestic and export markets. At the same time, Moody's rating of SOCAR is constrained by a very high concentration of upstream assets, which are heavily depleted. With almost no exploration activity performed for a number of years, the company's ability to replace reserves in a cost-efficient manner remains untested, highlighting uncertainty over the its long-term growth potential and development. Moreover, SOCAR 's high susceptibility to negative government interference presents an additional challenge for its credit quality.
To maintain the stable outlook Moody's expects SOCAR to continue to maintain solid financial ratios and credit metrics, with a retained cash flow-to-net debt ratio exceeding 30% and debt/total capitalisation below 30% on an adjusted basis, as well as healthy liquidity profile.
There is no immediate positive pressure on the rating, due to the stable positioning of the sovereign rating. A higher BCA would be supported by improvements to the company's reinvestment risk profile, the track record of reserves additions and improved disclosure.
A one-notch downgrade of Azerbaijan's sovereign rating from the current rating of Ba1 would result in one notch downgrade of SOCAR 's corporate family rating, assuming unchanged support and dependence factors. A weakening of SOCAR 's financial profile with RCF to Net Adjusted Debt falling consistently to below 20% might result in a lower BCA. Other factors that might lead to a rating downgrade include: (i) evidence of reduced support from the State, or (ii) measures taken by the State which would seriously impair SOCAR 's credit quality, e.g. materially unfavourable regulatory changes, punitive tax and/or significant equity withdrawals.
|
|
|
