S&P: Only 10% of SOCAR’s Debt Guaranteed by Government

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The international rating agency S&P Global Ratings has confirmed the long-term credit rating of SOCAR at BB-

The forecast on SOCAR ratings has been revised in accordance with Azerbaijan’s sovereign rating from “stable” to “negative”.

“We still view SOCAR as one of the government’s main assets in the oil and gas industry, which is key for the country’s economy. The company is wholly owned by the government, which is actively involved in defining the company’s strategy and decision-making, and has repeatedly provided it with significant capital injections and loaned funds to finance capital expenditures. At the same time, only about 10% of the company’s debt is guaranteed by the government, ”the statement says.

S&P does not specify the total debts of the State Oil Company of Azerbaijan, however, according to Turan, this is at about $ 10 billion.

As noted by S&P, the agency’s baseline scenario assumes a limited impact of the situation in connection with the Nagorno-Karabakh conflict on the business position or liquidity of SOCAR. As far as we understand, SOCAR’s main oil and gas assets are located quite far from the conflict zone, and only export pipelines run about 30-40 km from Nagorno-Karabakh.

As noted in the message, despite the sharp drop in oil and gas prices in the second quarter of 2020, the decline in EBITDA of SOCAR in the first half of 2020 was relatively controllable (2 billion 138 million manats, or about $ 1.3 billion compared to 2 billion 571 million manats in the same period of 2019).

The company reflected in the reporting an extremely high outflow of working capital (676 million manats under IFRS) and significant capital expenditures (1 billion 788 million manats). This led to a significant negative amount of free operating cash flow (FOCF) (-847 million manats), which was not fully compensated by injections from the state, which amounted to 373 million manats.
“We expect SOCAR’s EBITDA to decline to about 4 billion manats in 2020 and gradually recover to 4.2-4.7 billion manats in 2021-2022 (in comparison with 4.8 billion manats in 2019),” analysts of the agency note.  


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