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Fitch assigns Azerbaijan Railways ’BBB-’ rating

20 June 2012 08:43 (UTC +04:00)

The Outlook is Stable. ADY’s rating is aligned with that of Azerbaijan (’BBB-’/Stable), its 100% shareholder, Reuters reported.

Fitch’s assessment considers ADY’s high strategic importance to the national economy, including its position in transport of export-bound oil and oil products as well as freight
transit, which are significantly contributing to the economy of Azerbaijan. Legally, Fitch anticipates that ADY will remain 100% state owned in the foreseeable future, but notes that ADY’s debt is not guaranteed by the government. The debt level is relatively modest (AZN227m at YE11), but Fitch does not anticipate any increase in the coming years.

The agency views the government-approved tangible support in the form of significant committed state funds (both directly from the state budget - USD1.3bn equivalent and borrowed by the state without recourse to ADY - USD450m and EUR287m) for ADY’s extensive capex programme over 2012-2016 (USD2.5bn) as a key factor for the rating alignment. Fitch expects these funds to be contributed to ADY as permanent equity, with the remaining 15% of the capex (and additional maintenance capex of around AZN30m p.a.) to be funded from operating cash flows of the company. A change in the proposed funding terms may result in ADY’s rating being notched down from the sovereign rating.