BAKU

Moody’s Investors Service (“Moody’s”) has changed the outlook of Azerbaijan’s State Oil Company (SOCAR) to positive from stable.

Moody’s has also affirmed SOCAR’s Ba2 corporate family rating (CFR), Ba2-PD probability of default rating (PDR), b1 baseline credit assessment (BCA), and Ba2 rating of SOCAR’s senior unsecured notes.

“Rating action follows a sovereign rating action on Azerbaijan which took place on 6 April 2021, during which Moody’s changed the outlook on Azerbaijan’s rating to positive from stable and affirmed the long-term issuer and senior unsecured debt ratings at Ba2,” the rating agency said in a statement.

The agency said that the rating action was in line with the sovereign rating action and reflected SOCAR’s strong credit linkages with the state, as well as its exposure to Azerbaijan’s operating and macroeconomic environment.

The positive outlook on Azerbaijan’s rating reflects Moody’s assessment that governance and in particular policy effectiveness is improving, albeit from a low base, which may raise the resilience of the government’s credit profile.

In particular, enhancements to the monetary and macro policy framework may promote stability in the external and banking sectors in the face of shocks, while continued effective use of sizeable fiscal buffers would allow counter-cyclical spending and limits the deterioration in the government’s fiscal and debt metrics.

The affirmation of Azerbaijan’s Ba2 rating balances credit strengths from the country’s sizeable net creditor position that underpins fiscal strength and lowers government liquidity and external vulnerability risks, as well as relative domestic political stability that supports the implementation of oil and gas projects, against credit challenges including still limited prospects for economic diversification, longstanding institutional and governance weaknesses, and geopolitical tensions with neighbouring Armenia.

“As a result, Moody’s expects that operating and macroeconomic environment for SOCAR will gradually improve, supporting its credit profile.,” the agency said.