SOCAR's ratings incorporate state support and are aligned with Azerbaijan's ('BBB-'/Stable). Wholly state-owned SOCAR represents the state's interests in the strategically important oil and gas industry and continues to receive equity injections from the state, eg, AZN190m in 2011 and a further AZN200m approved in 2012 but not yet transferred to SOCAR.
SOCAR is relatively limited scale, with 2011 oil and gas production of 263 thousand barrels of oil equivalent per day). Fitch expects future production growth to be driven primarily by output expansion under SOCAR's major production-sharing agreements (PSAs). As SOCAR perates mature oil and gas fields, its production costs are high compared with those of its Russian peers.
The ratings factor in SOCAR's intensive capex programme of AZN5.3bn over 2012-2015, including its obligations under the PSAs. In addition, the group plans to build a STAR refinery in Turkey with 10m tonnes of crude oil refining capacity to be completed in 2017.
SOCAR's ratings could be affected by a sovereign rating action. Evidence of weakening state support would be negative for SOCAR's ratings. An increase in the level of state support, eg., government guarantees for a large portion of the company's debt, coupled with a sovereign upgrade would be positive for its ratings.
SOCAR's cash position of AZN1.006m at 30 June 2012 was sufficient to cover its short-term debt maturities of AZN656m on that date. A large portion of SOCAR's cash including short-term deposits is held at the state-owned International Bank of Azerbaijan ('BB'/Stable).
Fitch notes that SOCAR will need to repay or refinance the equivalent of USD727m in 2013. Thereafter, annual bond maturities do not exceed the equivalent of USD400m until 2017.
74% of SOCAR's debt at 30 June 2012 is denominated in USD including the USD500m bond maturing in 2017.
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