Standard & Poor's assigned 'B-' issue rating to Baghlan Group FZCO

Standard & Poor
# 11 December 2013 11:01 (UTC +04:00)

Baku. Vahab Rzayev – APA-Economics. Standard & Poor's Ratings Services said today it assigned its 'B-' issue rating to the proposed senior secured notes to be issued by Azerbaijan-based conglomerate Baghlan Group FZCO's subsidiary, Baghlan Group Ltd. (not rated), under the parent's guarantee.

The rating is subject to Agency’s review of the notes' final terms and conditions. These include, but are not limited to, utilization of bond proceeds, maturity, size and conditions of the bonds, financial and other covenants, security, and ranking.

The issue rating on the proposed notes reflects the long-term rating on Baghlan Group FZCO, because it will provide an unconditional and irrevocable guarantee on all payments due under the notes. It also incorporates our understanding that the notes will be secured with pledges on Baghlan Group FZCO's stakes in oil and gas assets.

According to Agency, Baghlan Group FZCO plans to refinance a major part of its currently outstanding debt with the proposed notes. After the planned refinancing, other liabilities will include limited secured debt and relatively sizable trade payables. Trade payables are mainly concentrated in Baghlan Group FZCO's subsidiary responsible for the road construction business, offset by large receivables for road construction, and in Agency’s view trade creditors do not have recourse to other assets of the group.

Baghlan Group FZCO is an Azerbaijan-based company operating in five segments: freight forwarding, public transportation, construction project management (residential and infrastructure), equipment procurement, and oil and gas. Baghlan Group FZCO generated Azerbaijan manat (AZN) 52 million (about $67 million) of EBITDA in the first half of 2013, but it’s expected second-half 2013 EBITDA to be higher because of a recently completed residential property sale, although such sales are occasional rather than regular. On June 30, 2013, Baghlan reported total outstanding debt of AZN244 million.

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