Rating of 'Azerenergy' OJSC may be reduced - UPDATED

Baku. 12 January. REPORT.AZ/ Standard & Poor's Ratings Services today placed its 'BBB-' long-term and 'A-3' short-term corporate credit ratings on vertically integrated Azerbaijan-based electricity utility Azerenerji JSC on CreditWatch with negative implications.

The state's track record of support to Azerenerji includes equity injections, debt guarantees, direct state borrowings, asset transfers, low-interest-rate loans, and financial aid provisions. Although Azerenerji is subject to various taxes, the government has a history of approving tax payment delays for the company.. In addition, Azerenerji's payables of about US$2.0 billion to the sole fuel provider, state-owned State Oil Company of Azerbaijan Republic (SOCAR), were written off with the government's consent in 2010. In the same year, Azerenerji's receivables of a similar amount from other state companies were also written off.

The agency assumes a 4%-5% increase in revenues on the back of power volume growth in 2016 so that the

annual capital expenditures will be about AZN100 million-AZN120 million; and

State equity injections.

Based on assumptions, company arrive at the following credit measures:

EBITDA of AZN220 million-AZN 240 million;

Funds from operations (FFO) of about AZN 150 million-AZN 170 million;

Debt to EBITDA of about 9.0x; and FFO-to-debt below 10%.

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International rating agency "Standard & Poor's" (S&P), has confirmed long-term credit rating of "Azerenergy" OJSC as "BBB-", short-term corporate rating as "A-3", and the outlook as "negative".

Report informs the agency associated 81% of the debt of "Azerenergy" with exposure to currency risk.

"S&P" reduced independent credit profile of "Azerenergy" JSC from "b" to "CCC +" - and the reason for this is significant increase in leverage ratio, and non-durable capital structure.

In addition, the "Azerenergy" has negative credit reports and in case of need for the state's emergency assistance the company's rating may be reduced.