International agency raised SOCAR's credit rating to BB level

The long-term credit rating of the State Oil Company of the Azerbaijan Republic (SOCAR) has been upgraded from BB- to BB, with significant improvement noted in the transparency of financial policy and information disclosure by the company. The rating outlook is designated as "stable".

As reported by BAKU.WS, this information is contained in a statement from the International Rating Agency S&P Global Ratings.

The document notes that in recent months, SOCAR has demonstrated substantial progress in information disclosure and communication with rating organizations, which has positively influenced the improvement of the company's performance indicators.

S&P upgraded SOCAR's standalone credit profile (SACP) assessment from B to BB-, which in turn served as the basis for revising the company's overall rating and the rating on its unsecured debt obligations.

According to the agency, the stable outlook reflects expectations that SOCAR will maintain a manageable level of liquidity, relying on significant cash reserves, the ratio of funds from operations (FFO) to debt will remain above 12%, and the company will ensure stable operational results. At the same time, the assessment of the level of government support for the company remains unchanged.

According to S&P Global Ratings calculations, SOCAR's financial indicators will maintain relative stability in the coming years.

At the same time, according to S&P forecasts, cash flows from operations (FFO) will generally remain stable due to reduced tax burden and a slight reduction in interest expenses. This will allow SOCAR to maintain an FFO to debt ratio in the range of 12-15% in the agency's base scenario.

S&P notes that this forecast takes into account an increase in capital expenditure (Capex) to approximately 3 billion manats per year, reflecting potential investments in extraction projects, as well as maintaining a stable level of dividend payments.

According to the agency's calculations, based on S&P Global Ratings methodology, SOCAR's adjusted debt indicator will remain at a high level - approximately 27.5-28 billion manats, despite moderately positive free operating cash flow (FOCF) of about 1 billion manats.

S&P emphasizes that the calculations use total debt (excluding cash), although certain adjustments are made to the model. Nevertheless, at the end of 2024, SOCAR had significant cash funds of approximately 14 billion manats on its balance sheet, which supports the company's liquidity, especially considering the high proportion of short-term liabilities.

Taking into account the volume of these cash funds, the FFO to debt ratio slightly exceeds 20%. S&P hopes to maintain this indicator in the medium term.