S&P upgrades Azerbaijani energy operator's standalone credit profile

International rating agency S&P Global Ratings has affirmed the long-term and short-term issuer credit ratings of Azerbaijan's energy operator AzerEnergy at BB/B with a stable outlook.

According to Report, which cites the company, the favorable operating environment, supported by high electricity prices, has strengthened AzerEnergy's financial profile.

S&P revised AzerEnergy's standalone credit profile (SACP) from b- to b, citing the company's consistently improving financial metrics. The agency now forecasts that the adjusted ratio of funds from operations (FFO) to debt will remain above 30% from 2024 onwards. This ratio has been strong for two consecutive years, reaching 38.8% in 2023 after peaking at 62.8% in 2022. The improvement is driven by high electricity prices and increased electricity export volumes, particularly to Türkiye.

Agency experts believe that while energy crises and inflation have posed challenges for most utility companies in recent years, AzerEnergy has not experienced significant negative consequences from the energy crisis amid the Russia-Ukraine conflict. They say that, in fact, the energy operator has benefited from high electricity prices, and like some other companies in Azerbaijan, has received support from higher gas prices, as a significant part of the economy depends on oil and gas.

The stable outlook on AzerEnergy's rating reflects the outlook on the sovereign rating. S&P sees a high likelihood of extraordinary government support for the company and expects the government to continue supporting AzerEnergy's large investment program and cover any liquidity shortfalls.

Despite facing risks such as foreign exchange volatility, a weak domestic banking system, and potential increases in working capital or capital expenditures, S&P believes these weaknesses are offset by government support. Historically, AzerEnergy has benefited from a wide range of government support measures, including capital injections, debt service payments, tax benefits, and zero dividends, underscoring its important economic and social role for the Azerbaijani government.