Fitch Ratings-Moscow-15 March 2019: Fitch Ratings has affirmed Southern Gas Corridor CJSC's (SGC) senior unsecured Eurobonds' long-term rating at 'BB+', ONA reports.
The affirmation reflects Fitch's unchanged view on SGC's USD2 billion Eurobonds maturing in 2026 fully guaranteed by the Republic of Azerbaijan (BB+/Stable).
The rating reflects the unconditional, unsubordinated and irrevocable guarantee of full and timely repayment provided to noteholders by the Azerbaijan government. As a result, Fitch views the notes' rating as equalised with the sovereign's Long-Term Issuer Default Rating (IDR).
Azerbaijan explicitly guarantees SGC's notes, while the noteholders can enforce their claims directly against the state without being required to institute legal actions or proceedings against SGC first. The guarantee is governed by English law and ranks pari passu with all other unsecured external sovereign debt. Historically, the reserves for the guarantee coverage had been appropriated in the annual state budgets for 2016-2018, and we expect continuity of this practice in 2019 onwards.
According to the management forecast SGC's total needs for cash, net of expected proceeds from operations of Shah Deniz, South Caucasus Pipeline and planned divestments, will be close to USD700 million in 2019-2020.
SGC's funding stems from a combination of debt and equity injections from the state, with the latter amounting to USD2.4 billion as of end-2018. SGC's debt stock as of end-2018, comprised 38% bonds purchased by State Oil Fund of the Republic of Azerbaijan (SOFAZ), followed by loans originated or guaranteed by IFIs (32%) and Eurobonds (30%).
SGC acts as a financial vehicle and asset holding agent in the gas export sector of Azerbaijan with stakes in the Shah Deniz gas-condensate field and gas pipelines stretching to southern Europe via Georgia and Turkey. Azerbaijan tightly controls SGC as it ultimately owns 100% of the entity via a 51% stake held by the Ministry of Economy and a 49% stake held by the State Oil Company of Azerbaijan Republic (SOCAR, BB+/Stable).
The rating of the senior unsecured notes is equalised with that of the Republic of Azerbaijan. Accordingly, changes in the sovereign rating will be reflected in the notes' rating. Furthermore, any sign of the Republic of Azerbaijan's intention to revoke or failure to honour the guarantee would be rating-negative.