S&P reinstated its 'BB+' long-term corporate credit rating on Azerbaijan Railways CJSC

Baku. 13 November. REPORT.AZ/ Standard & Poor's Ratings Services today reinstated its 'BB+' long-term corporate credit rating on state-owned railway operator Azerbaijan Railways CJSC (ADY). 

Report informs referring to Standard & Poor's the agency suspended the rating on July 31, 2015, due to a lack of sufficient information on financial and operating performance.By that time the company had a long-term corporate rating at "BB +" with a negative outlook.

The rating was restored on November 10, after giving financial reports to the agency. According to agency ADY's rating depended on the following factors:

1) "Very important" role for the Azerbaijani government, in light of ADY's monopoly position as the owner and manager of the national rail infrastructure and rolling stock. ADY plays a key role in implementing Azerbaijan's infrastructure development plan, which we understand is one of the government's priorities.

2) "Very strong" link with the government of Azerbaijan, given the state's 100% ownership of ADY; the government's role in appointing the company's senior management and its involvement in strategic decision taking; and it is clear that ADY will not be privatized in the medium term.

According to Standard & Poor's assessment of the company's SACP at 'bb-' is one notch lower than the SACP

at the time they suspended the rating. Downward revision of the SACP is due to assessment that ADY's financial risk profile has weakened to "intermediate" from "minimal." This revision reflects S&P's expectation that the company's funds from operations (FFO) to debt will fall to less than 45% and FFO cash interest coverage will decline to below 9.0x by year-end 2015, primarily due to weaker operating performance and the depreciation of Azerbaijani manat (AZN). The manat lost about one-quarter of its value after devaluation in February 2015, which inflated ADY's mainly U.S. dollar-nominated debt. Additionally, it is estimated that transportation volumes have fallen by up to 40% in the first half of 2015, which translates into a broadly similar decline in EBITDA. According to agency it would also lower its rating if they assess that ADY's 'bb-' SACP had weakened to 'b+' or lower. This could occur if the company's operating performance does not stabilize or its financial policy changes and the company finances a significant part of its capex program with external funds, which would result in their FFO to debt ratio declining to below 30% on a prolonged basis.