Fitch Ratings Affirmed Ratings of SOCAR

Fitch Ratings has affirmed State Oil Company of the Azerbaijan Republic's (SOCAR) Long-Term Issuer Default Rating (IDR) at 'BB+', Short-Term IDR at 'B' and senior unsecured rating at 'BB+'. The Outlook on the Long-Term IDR is Negative.

SOCAR's ratings are aligned with Azerbaijan's, as it represents the state's interests in the strategically important oil and gas industry. The company is 100% state owned, accounts for 20% of Azerbaijan's oil and gas production, is the largest employer in the country, and a significant contributor to the state budget.

It has close ties with the government and the State Oil Fund of the Republic of Azerbaijan (SOFAZ) in financial and investment decision-making. The assets of SOFAZ as of January 1, 2017 stood at USD 33.1bn (a 1.3% yoy decrease). We view the operational and strategic ties between SOCAR and its parent as strong, while we see its legal ties as medium (13% of total debt was state-guaranteed at end-June 2016).

Among the factors that could lead to a change in the rating outlook to "stable" the Agency named: improvement of the budgetary position, a steady increase in energy prices, improving governance and the business environment, and the country's progress towards economic diversification.

The Agency considers SOCAR liquidity adequate. SOCAR had cash in the amount of 3.8 bn. manat as of 30 June 2016, of which 63% is placed in banks on dollar accounts. Fitch estimates these funds sufficient to cover short-term debt in the amount of 3.4 bn. AZN at that date.

However, the report pointed out that the forecasts for SOCAR allowed taking into account world oil prices in 2017 of $ 45, in 2018 $ 55, and in 2019 $ 60 per barrel. The rate of the national currency in the forecast is set at 1.89 manat per dollar.   --71D