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+,” Report informs referring to Fitch Ratings website.

The affirmation reflects Fitch's unchanged view on SGC's $2 billion Eurobonds maturing in 2026 fully guaranteed by the Republic of Azerbaijan (BB+/Stable), according to the report.

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 $225.7 million and the remainder of the project costs of $176.5 million) will be fully covered by expected proceeds from the operations of Shah Deniz, South Caucasus Pipeline and TANAP projects, along with accumulated cash.

SGC's funding stems from a combination of $6.5 billion debt and $2.4 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 favor of the State Oil Fund of the Republic of Azerbaijan (SOFAZ), followed by IFI/IFI-backed loans (30.9%) and Eurobonds (30.6%).