Fitch Ratings has affirmed Azerbaijan Railways Closed Joint Stock Company's (ADY) Long-term Issuer Default Rating (IDR) at 'BBB-' with a Stable Outlook.
ADY is the wholly state-owned operator of the national railway system in Azerbaijan (BBB-/Stable) and its rating continued to be aligned with that of the sovereign, the Republic of Azerbaijan, its sole shareholder, reflecting continued relatively strong links with the state.
The rating alignment primarily reflects Fitch's assessment of ADY's links with its parent as relatively strong, in accordance with Fitch's Parent and Subsidiary Rating Linkage criteria. Fitch's assessment considers ADY's high strategic importance to the national economy, including its position in transport of export-bound oil products and oil as well as freight transit, which contribute significantly to Azerbaijan's economy. The agency also views the operational links as strong due to the government's involvement in tariff setting, capex planning and funding, financial and business strategy and policy setting, the report of the agency said.
Fitch anticipates that ADY will remain 100% state owned in the foreseeable future, but notes that ADY's debt is not guaranteed by the government.
"ADY's current 1.4 billion AZN investment programme over 2014-2017 was initiated by the Ministry of Transport back in 2010. The government of Azerbaijan continues to finance a large share of the investment programme via loans borrowed by the government without recourse to ADY (390 million AZN), as well as equity injections while the rest is expected to be funded with ADY's cash flows. We view this as a continuing sign of tangible support from the government. A change in the proposed funding terms may prompt Fitch to review its assessment of the strength of state support for ADY," the report said.
In 2013, ADY reported revenue of 534 million AZN, up 5.7% year-on-year, the analysts of the agency said.
"Its EBITDA reached 235 million AZN, resulting in an EBITDA margin of about 44% compared with 41% in 2012. Freight transportation revenue continued to dominate and accounted for about 67% of total revenue amounting to 360 million AZN, with an equal split between export/import and transit operations. Fitch notes that oil products and oil transportation continued to prevail in ADY's freight transportation revenue, making up 67% of freight transportation revenue or 45% of total revenue in 2013. Freight transportation revenue increased 7.3% in 2013. This was partially driven by a 2.5% rise of oil and oil transportation and an increase of about 5% of dry cargo transportation volumes. This was also partially due to an average tariff increase of about 3.8%. We expect railway traffic to increase upon commissioning of the Baku-Tbilisi-Kars rail link in 2015, enabling deliveries from Baku to Istanbul and further to Europe"the report said.