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    Fitch: Manat devaluation will affect a number of institutions

    Manat devaluation increased income statement of SOCAR

    Baku. 3 March. REPORT.AZ/ The recent 33.5% Azerbaijan manat devaluation will weaken the standalone credit profile of Azerenerji, Fitch Ratings says. 

    Report informs referring to the agency, this is due to the currency mismatch between the electrical power producer's debts and revenues and limited use of hedging to reduce exchange-rate risk exposure. The impact on Azerbaijan Railways will be limited and it is likely to be broadly neutral for export oriented oil company SOCAR.

    The weaker credit profile of Azerenerji is unlikely to result in a downgrade, as its IDR is aligned with the 'BBB-'/Stable sovereign rating, due to strong links with the state and on-going support in the form of guarantees and equity injections.

    We believe that Azerenerji is more exposed as almost 80% of its debt is denominated in foreign currencies, mainly in euros, dollars and Japanese yen. In contrast, almost all revenue is denominated in local currency and it has no significant hedging activities in place to mitigate this risk. However, the majority of loans are guaranteed by the state and the rating of the firm may be downgraded in the case of reduced sovereign rating of Azerbaijan or government support.

    Although Azerbaijan Railways' debt is all foreign currency denominated it is better positioned compared to Azerenerji. This is because roughly two-thirds of its total revenue is from freight export/import and transit operations, international tariffs for which are set in Swiss francs and denominated by the company in dollars. Azerbaijan Railways' rating is also aligned with the sovereign.

    Over 80% of SOCAR's debt is denominated in dollars, but at the same time the vast majority of revenues and trade receivables are also USD-linked, which will neutralise the impact on leverage ratios. The devaluation, and corresponding increase in manat denominated revenues, will provide a cushion for a decline in oil prices as a significant portion of SOCAR costs is in manat. SOCAR's rating is also aligned with the sovereign. 

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