S&P expects Azerbaijan to further support liquidity of Azerenerji in 2021

The S&P international rating agency has revised its outlook on Azerenerji to stable from negative while affirming ‘BB/B’ issuer credit rating (ICR) on Azerenerji, Report informs, referring to S&P.

The rating action follows the outlook revision to Azerbaijan because S&P believes Azerenerji’s credit quality is closely tied to that of the sovereign.

"We believe there is an extremely high likelihood that Azerbaijan would provide timely and sufficient extraordinary state support to the company in the event of financial distress. This is highlighted by a wide track record of support to the company (including state guarantees on debt), capital expenditure (CAPEX) financing, government loans to the company, and close monitoring of Azerenerji’s debt payments by the government," reads the statement.

S&P expects the state to continue to help alleviate pressure on Azerenerji’s liquidity and leverage. At the moment, about 85 percent of the company’s debt is to the government, and the government guarantees the rest.

"The Ministry of Finance has a strong track record of providing financial support to the company (including paying debt interest, equity injections, direct low-rate state borrowing, and tax benefits), and we expect this to continue in 2021. For instance, we understand that the government has budgeted sufficient funds to cover Azerenerji’s debt and interest payments due in 2021 if needed. We expect the company to avoid any third-party debt without government guarantees," the authors of the report said.

S&P expects Azerenerji’s stand-alone performance to be stable and liquidity manageable.

"We understand that COVID-19 and the recent conflict between Armenia and Azerbaijan have had no direct implications for Azerenerji’s operations or assets, and the company’s liquidity remains manageable thanks to continuing state support and monitoring. We don’t expect Azerenerji to undertake any large investments (such as to rebuild electricity infrastructure in the regions affected by the recent conflict) without government funding. We understand the state budget for 2021 envisages 2.2 billion manats (or about 2.9 percent of GDP) for financing reconstruction activities.)," the agency noted.