BAKU

Fitch Ratings has affirmed Southern Gas Corridor CJSC’s (SGC) senior unsecured Eurobond’s long-term foreign-currency rating at ‘BB+’.

The agency said that the affirmation reflected Fitch’s unchanged view on SGC’s $2 billion Eurobonds maturing in 2026 fully guaranteed by Azerbaijan (BB+/Stable).

“The rating reflects the unconditional, unsubordinated and irrevocable guarantee of full and timely repayment provided to SGC’s noteholders by the state,” Fitch said in a report.

Fitch views the notes’ rating as equalised with Azerbaijan’s long-term foreign-currency IDR.

In November, Fitch Ratings affirmed Azerbaijan’s long-term foreign currency Issuer Default Rating (IDR) at ‘BB+’ with a Stable outlook, supported by the country’s very strong external balance sheet, low public debt and strong financing flexibility from large sovereign wealth fund assets.

SGC’s notes are explicitly guaranteed by Azerbaijan, and noteholders can enforce their claims directly against the state without being required to institute legal actions or proceedings against SGC first, the agency said.

The guarantee is governed by English law and ranks pari passu with all other unsecured external sovereign debt. Historically, reserves for the guarantee coverage were appropriated in the annual state budgets for 2016-2020, and we expect this practice to continue.

Factors that could, individually or collectively, lead to positive rating action/upgrade:
– The senior unsecured notes’ rating is equalised with that of the Republic of Azerbaijan. Accordingly, an upgrade in the sovereign rating will be reflected on the notes’ rating.

Factors that could, individually or collectively, lead to negative rating action/downgrade:
– Signs that Azerbaijan will not honour or will revoke the guarantee would be rating negative;

– A downgrade of the sovereign rating will be reflected in the notes’ rating.

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 the Trans-Anatolian Pipeline (TANAP) and Trans-Adriatic Pipeline (TAP) projects.