TBILISI

Fitch Ratings affirmed Georgia’s state-owned Oil and Gas Corporation’s (GOGC) long-term foreign-currency Issuer Default Rating (IDR) at ‘BB’ with a negative outlook and simultaneously withdrew the rating.

“The affirmation reflects our expectation that GOGC will be able to deleverage to within our rating sensitivities from 2022 on improved EBITDA from the electricity generation segment, following an expected leverage spike in 2021,” Fitch said in a statement.

The agency said that the rating was also supported by GOGC’s monopoly in oil and gas transportation in Georgia and the company’s role as the state’s agent in the power sector.

According to Fitch,  the negative outlook mirrors that of Georgia (BB/Negative), as per Fitch’s Government-Related Entities (GRE) rating criteria.

Fitch rates GOGC by applying a one-notch uplift to Its Standalone Credit Profile (SCP) of ‘bb-‘ to arrive at the same rating as Georgia, the ultimate source of potential support to the company, it said.

The rating was withdrawn for commercial reasons.

At end-September 2020, GOGC signed a loan agreement with EBRD for a 217 million euros ($261 million) senior unsecured loan, which is sufficient to cover short-term maturities of $250 million Eurobonds.

GOGC issued 5-year Eurobonds worth $250 million on the London Stock Exchange in 2016 to refinance a previous issue of the same size in 2012. J.P.Morgan acted as bookrunner in the 2016 issue.

GOGC postponed a planned Eurobond issue last year due to unfavourable market conditions as coronavirus spread.

The corporation had planned to issue Eurobonds worth 300 million euros on the London Stock Exchange in April 2020 and to use the proceeds to refinance a previous issue, as well as to finance the construction of a third power plant in Gardabani.

Fitch’s Key Assumptions

– Further pressure on 2020-2021 gas-supply margins, due to lowered average social gas sale price to average $90/mcm

– Cheaper gas from Shah Deniz II field gradually increasing with significant flows from 2022

– Gardabani-2 power plant in operation since 2020; Gardabani-3 power plant to be operated from mid-2023 with total Capex of $200 million

– Total Capex averaging 270 million lari in 2021-2024

– No dividends from 2021.