“Fitch” beynəlxalq reytinq agentliyi Azərbaycan Dövlət Neft Şirkətinin (SOCAR) uzunmüddətli defolt reytinqini (Long-Term Issuer Default Rating – IDR) “BB+”, qısamüddətli IDR-i isə “B” səviyyəsində təsdiqləyib.
Bundan əlavə agentlik SOCAR-ın əsas qorunmayan reytinqini (senior unsecured rating) isə “BB+”, reytinq üzrə proqnozunu isə "sabit" olaraq müəyyən edib.
“Fitch” hesab edir ki, SOCAR neft və qaz layihələrinin inkişaf etdirilməsində böyük rola malikdir və dövlət onun sosial funksiyalarını nəzərə alır.
Fitch Affirms Azerbaijan's SOCAR at 'BB+'; Outlook Stable
Fitch Ratings has affirmed State Oil Company of the Azerbaijan Republic's (SOCAR) Long-Term Issuer Default Rating (IDR) at 'BB+', Short-Term IDR at 'B' and senior unsecured rating at 'BB+'. The Outlook is Stable. SOCAR's rating is aligned with Azerbaijan's rating (BB+/Stable).
SOCAR is Azerbaijan's national oil company and is fully owned by the state. SOCAR's standalone credit profile corresponds to 'B+', with high leverage the main rating constraint. The company's IDR is aligned with that of Azerbaijan in view of strong ties between the two as assessed in line with Fitch's Government-Related Entities (GRE) Rating Criteria. The alignment is underpinned by state support provided to the company in the form of financial guarantees and equity injections, as well as SOCAR's social functions and its importance as a state vehicle for the development of oil and gas projects.
KEY RATING DRIVERS
Close Links with the State: SOCAR's rating is aligned with that of the state given their close ties. Most oil and gas projects in Azerbaijan operate as concessions, where SOCAR has a minority stake and where it also represents the state and collects the state's share of profit oil to be transferred to the national oil fund (SOFAZ). In addition, SOCAR has stakes in some other major energy projects promoted by the state, such as the Southern Gas Corridor (SGC). Furthermore, the state guarantees 6% of the company's debt and provides equity injections to cover cash deficits.
SOCAR's taxes accounted for almost 9% of government revenue in 2017, while income from profit oil transferred by SOCAR to SOFAZ accounted for more than 65% of government revenue.
Social Functions: The rating alignment is also supported by SOCAR's social role. One of its key functions is production and sale of fuel at regulated prices, which are enough to cover the company's operating cash costs but are lower than international prices. Also, SOCAR employs more than 50,000 people in Azerbaijan. The company does not pay dividends but it may be required by the state to make cash contributions to the state budget, government agencies or to directly fund some social projects.
'B+' Standalone Credit Profile: SOCAR's high leverage constrains its standalone credit profile at 'B+' although its business profile is stronger and corresponds to the 'BB' rating category. In 2017, SOCAR's net production amounted to 247 thousand barrels of oil equivalents per day, including 60% of liquids; and its reserve life was manageable at nine years. SOCAR's unit profitability calculated as funds from operations (FFO) to upstream production was relatively robust at USD19/boe, in between that typical for integrated oil majors (e.g. Royal Dutch Shell plc, AA-/Stable - USD30/boe) and for Russian oil producers (e.g. Rosneft Oil Company - USD9/boe).
High Leverage: SOCAR's leverage will remain high by industry standards. In 2017, the company's FFO adjusted net leverage stayed at 5.0x, and we project it will remain at approximately the same level over the rating horizon. This level of leverage is more typical for companies rated at 'B' rating category or below.
To a large extent SOCAR's high leverage is the function of its close links with the state, which exercises significant control over the company's profitability and balance sheet through regulation of domestic fuel prices, cash injections, government distributions and other measures. However, we believe that the government has incentive to keep SOCAR adequately funded.
Southern Gas Corridor Project: We have limited visibility on possible cash outflows related to SOCAR's participation in large scale projects supported by the state, such as the SGC. This limited visibility is one of the factors constraining the rating in the 'B' rating category. SOCAR's investments in the project are structured through its joint venture with the Ministry of Economy and are not consolidated.
The USD40 billion SGC project, which is being developed in coordination with BP plc and other partners, includes the full-field development of the Shah Deniz gas field, the expansion of the South Caucasus Pipeline, and the construction of Trans-Anatolian and Trans Adriatic gas pipelines (TANAP and TAP) connecting Azerbaijan with Turkey, Italy and some other countries. The project has largely been completed as TANAP became operational in 2018 and TAP should come on stream by end-2020.
STAR Refinery Starting Up: Construction of the STAR refinery in Turkey, SOCAR's largest investment abroad, was completed in October 2018, and it should ramp up to full capacity by the middle of 2019. The project has been mainly funded by the USD3.3 billion project finance debt raised in 2015, split into two tranches with maturities of 18 and 15 years and with a four-year grace period. We believe that the project, which is not consolidated by SOCAR, will require no further major cash outflows and that it will repay debt from operating cash flows. We do not assume the project to pay any dividends over the rating horizon.
Volatility from Trading Business: SOCAR's trading operations add volatility to the company's performance and are moderately negative for its standalone credit profile. In 2017 SOCAR significantly expanded its trading operations, including third-party volumes, but scaled them down in 2018. Trading business is capital-intensive and is subject to large working capital fluctuations. In the long term, its profitability depends on the effectiveness of risk management techniques; SOCAR's track record in the business, especially with regards to third-party volumes, is not yet sufficient to assess these.
We align SOCAR's rating with that of Azerbaijan under Fitch's Government-Related Entities (GRE) Rating Criteria to reflect strong ties between the two (strengths of the support score: 30). This approach is underpinned by SOCAR's participation in all of the largest oil and gas projects in the country and state support in the form of equity injections and guarantees. SOCAR's standalone profile is weaker and corresponds to 'B+', with high leverage the main constraint. High leverage is typical for some other national oil companies we rate in other countries, including Petroleos Mexicanos (BBB-/Negative) in Mexico and JSC National Company KazMunayGas (BBB-/Stable) in Kazakhstan.
Fitch's Key Assumptions Within Our Rating Case for the Issuer
- Brent crude price of USD71/bbl in 2018, USD65/bbl in 2019 and USD62.5/bbl in 2020 and USD60/bbl in 2021
- USD/AZN exchange rate: 1.7 over 2018 - 2021
- Neutral aggregate change in working capital over 2018 - 2021
- Aggregate capex of AZN13 billion over 2018 - 2021
- Contributions in associates and joint-ventures of AZN1.2 billion over 2018-2021
- Net contribution from the government of AZN1.5 billion over 2018-2021
Developments That May, Individually or Collectively, Lead to Positive Rating Action:
- Positive rating action on the sovereign coupled with an improvement in SOCAR's standalone credit profile. The improved standalone profile would be manifested by FFO net adjusted leverage consistently below 3.5x and more visibility on the company's spending plans.
Developments That May, Individually or Collectively, Lead to Negative Rating Action:
-Negative rating action on Azerbaijan
-Weakening state support
-Sustained deterioration in SOCAR's credit metrics, FFO net adjusted leverage exceeding 6.0x over an extended period of time.
The main factors that could, individually or collectively, trigger positive rating action are:
- Improvement in the macroeconomic policy framework, strengthening the country's ability to address external shocks and reducing macro volatility.
- A significant improvement in public and external balance sheet.
- An improvement in governance and the business environment leading to progress in economic diversification underpinning growth prospects.
The main factors that could, individually or collectively, trigger negative rating action are:
- An oil price or other external shock that would have a significant adverse effect on the economy, the public finances or the external position.
- Developments in the economic policy framework that undermine macroeconomic stability.
- Weakening growth performance and prospects.
Manageable Liquidity: As of 30 June 2018, SOCAR's liquidity amounted to AZN8.7 billion against AZN6.0 billion of short-term debt and current portion of long-term borrowing. Liquidity included Fitch-defined cash and cash equivalents of AZN6.4 billion as well as AZN2.3 billion of undrawn committed lines of credit, of which 25% was in hard currencies. The bulk of short-term debt was mainly in US dollars and related to SOCAR's trading arm. Liquidity could come under some pressure in view of the forecast FCF over 2018-2019. However, we expect the state to cover any liquidity gaps through equity injections.
No Subordination Issue: A significant part of SOCAR's consolidated debt (40%) is at the level of two operating subsidiaries, SOCAR Trading and Petkim Petrokimya Holdings A.S. (B/Stable) in Turkey. However, in 2017 these subsidiaries accounted for a relatively minor part of the group's EBITDA (less than 25%). Consequently we do not view the parent company's creditors as structurally subordinated to those of subsidiaries.