Standard & Poor's Ratings Services said today that it has assigned its 'BBB-' long-term and 'A-3' short-term corporate credit ratings to Azerbaijan-based electric utility Azerenerji JSC. The outlook is stable, Standard & Poor's press release says on Thursday.
"We have equalized the ratings on Azerenerji, a vertically integrated electric utility, with those on its 100% owner, the Republic of Azerbaijan (BBB-/Stable/A-3) as we believe there is an "almost certain" likelihood of extraordinary government support in the event of financial distress according to our criteria for government-related entities We assess the company's stand-alone credit profile at 'b', based on our view of its "fair" business risk profile and "highly leveraged" financial risk profile," the press release says.
The Azerbaijani government's strong track record of financial support also underlines its commitment to Azerererji, in our view. This includes equity injections, debt guarantees on more than 90% of Azerenerji's debt as of year-end 2012 excluding accrued interest and leasing, asset transfers, low-interest-rate loans, and financial aid provisions.
"Our base-case scenario indicates that Azerenerji will remain highly leveraged over the next two years, with a debt-to-EBITDA ratio of 5.0x-6.0x. We assume that, to finance its planned investment program totaling Azerbaijan manat (AZN) 2,250 million (about $2.9 billion) in 2013-2015, the company will receive about AZN2,130 million from the state budget as direct financing and equity injections. The stable outlook reflects that on the sovereign rating and our expectation that we will continue to equalize the ratings on Azerenerji with those on Azerbaijan, owing to the "almost certain" likelihood of extraordinary government support. We believe that Azerenerji's role for the government will remain critical and that its links with the government will not weaken. A rating action on Azerbaijan would result in an equivalent action on Azerenerji," the press release says.