Tuesday, 17 March 2020 07:15

Fitch Affirms Southern Gas Corridor CJSC's Notes at 'BB+'

Fitch Ratings has affirmed Southern Gas Corridor CJSC's (SGC) senior unsecured Eurobonds' long-term foreign-currency rating at 'BB+', Caspian Energy News reports, citing Fitch Ratings.

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 SGC's noteholders by the state. As a result, Fitch views the notes' rating as equalized with Azerbaijan's Foreign-Currency IDR.

SGC is a special purpose company, established by presidential decree in 2014 for consolidating, managing and financing the state's interests in the development of Shah Deniz gas-condensate field, the expansion of the South Caucasus Pipeline, implementation of Trans-Anatolian Natural Gas Pipeline (TANAP) and Trans Adriatic Pipeline projects.

SGC's notes are explicitly guaranteed by Azerbaijan, 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 would rank pari passu with all other unsecured external sovereign debt. Historically, the reserves for the guarantee coverage were appropriated in the annual state budgets for 2016-2019, and we expect continuity of this practice in 2020 onwards.

As most of the projects are already commissioned, SGC's total needs for cash in 2020 (comprising debt service costs of USD225.7 million and the reminder of the project costs of USD176.5 million) will be fully covered by expected proceeds from the operations of Shah Deniz, South Caucasus Pipeline and TANAP projects, along with accumulated cash, according to management's forecast.

SGC's funding stems from a combination of USD6.5 billion debt and USD2.4 billion equity injections from the state. SGC did not borrow any new debt in 2019, while 38.5% of its debt stock as of end-2019 comprised bonds issued in favour of the State Oil Fund of the Republic of Azerbaijan (SOFAZ), followed by IFI/IFI-backed loans (30.9%) and Eurobonds (30.6%).

SGC acts as a financial vehicle and asset holding agent in the gas export sector of Azerbaijan, hence it is tightly controlled by the state. Azerbaijan 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).

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