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Re: Energy in Azerbaijan
Fitch Ratings places Azerbaijan Railways on Rating Watch Negative
Fitch Ratings international ratings agency has placed Azerbaijan Railways CJSC (ADY) Long-term Issuer Default Rating (IDR) of 'BBB-' on Rating Watch Negative (RWN), the message of the agency said Nov. 4.
“The RWN reflects the uncertainty regarding the form and the amount of state support that will be available to the company at the time of expected drop in earnings,” said the message.
A State Program for the Development of Railways over 2016-2020 (Program) is being discussed by the government of Azerbaijan, according to the message.
“We expect authorities to adjust capital spending to lower oil prices,” said the agency. “We may notch ADY's rating down from the sovereign rating if we think the support and links are weakening.”
Fitch continues to apply a top-down rating approach to ADY with its Long-term IDR being aligned with that of the Azerbaijan's sovereign as Fitch considers the strategic, operational and to a lesser extent legal ties between the state and the company as relatively strong, according to the agency's Parent and Subsidiary Rating Linkage methodology.
The strength of the ties is largely underpinned by ADY's high strategic importance to the national economy, including its position in the transport of export-bound oil products and oil as well as freight transit, which contribute significantly to Azerbaijan's economy.
“ADY continues to be highly dependent on export/import and transit shipments with a high share of oil and oil products, with only marginal revenue coming from local freight shipments,” said the message. “Following a decline in freight transportation volumes during the first half of 2015, we do not expect it to improve considerably over the second half of 2015-2018, on the back of slowing economies across the region as well as increasing competitive pressure from pipelines for crude oil transportation.”
New projects (including Baku-Tbilisi-Kars route to be commissioned by end-2016) should provide a boost to the volumes in the long term, according to the agency. “We believe ADY will remain a freight-focused railway, with the passenger business remaining relatively small.”
Freight transportation volumes will decline in 2015 by over 10 percent, flat volumes in 2016 and a low-single digit increase thereafter are also expected.
Future developments that could, nonetheless, lead to positive rating action include:
- ADY's rating will continue to be aligned with the sovereign if the level of state support remains unchanged.
- If the sovereign rating of Azerbaijan is upgraded to 'BBB' or above, Fitch is unlikely to continue to fully align ADY's ratings with the sovereign unless the legal links with the state are perceived to have strengthened.
- An improvement in the budgetary position, beyond the measures currently envisaged, sufficient to increase Fitch's confidence in the longer-term sustainability of Azerbaijan's sovereign balance sheet strengths.
- Sustainable economic diversification, supported by reforms to improve governance and transparency.
Azerbaijani Railways is operator of is the 100-percent state-owned national railway network of Azerbaijan (BBB-/Stable).
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The billion dollar project designed to circumvent Armenia is on its way to becoming insolvent.
Fitch Ratings places Azerbaijan Railways on Rating Watch Negative
Fitch Ratings international ratings agency has placed Azerbaijan Railways CJSC (ADY) Long-term Issuer Default Rating (IDR) of 'BBB-' on Rating Watch Negative (RWN), the message of the agency said Nov. 4.
“The RWN reflects the uncertainty regarding the form and the amount of state support that will be available to the company at the time of expected drop in earnings,” said the message.
A State Program for the Development of Railways over 2016-2020 (Program) is being discussed by the government of Azerbaijan, according to the message.
“We expect authorities to adjust capital spending to lower oil prices,” said the agency. “We may notch ADY's rating down from the sovereign rating if we think the support and links are weakening.”
Fitch continues to apply a top-down rating approach to ADY with its Long-term IDR being aligned with that of the Azerbaijan's sovereign as Fitch considers the strategic, operational and to a lesser extent legal ties between the state and the company as relatively strong, according to the agency's Parent and Subsidiary Rating Linkage methodology.
The strength of the ties is largely underpinned by ADY's high strategic importance to the national economy, including its position in the transport of export-bound oil products and oil as well as freight transit, which contribute significantly to Azerbaijan's economy.
“ADY continues to be highly dependent on export/import and transit shipments with a high share of oil and oil products, with only marginal revenue coming from local freight shipments,” said the message. “Following a decline in freight transportation volumes during the first half of 2015, we do not expect it to improve considerably over the second half of 2015-2018, on the back of slowing economies across the region as well as increasing competitive pressure from pipelines for crude oil transportation.”
New projects (including Baku-Tbilisi-Kars route to be commissioned by end-2016) should provide a boost to the volumes in the long term, according to the agency. “We believe ADY will remain a freight-focused railway, with the passenger business remaining relatively small.”
Freight transportation volumes will decline in 2015 by over 10 percent, flat volumes in 2016 and a low-single digit increase thereafter are also expected.
Future developments that could, nonetheless, lead to positive rating action include:
- ADY's rating will continue to be aligned with the sovereign if the level of state support remains unchanged.
- If the sovereign rating of Azerbaijan is upgraded to 'BBB' or above, Fitch is unlikely to continue to fully align ADY's ratings with the sovereign unless the legal links with the state are perceived to have strengthened.
- An improvement in the budgetary position, beyond the measures currently envisaged, sufficient to increase Fitch's confidence in the longer-term sustainability of Azerbaijan's sovereign balance sheet strengths.
- Sustainable economic diversification, supported by reforms to improve governance and transparency.
Azerbaijani Railways is operator of is the 100-percent state-owned national railway network of Azerbaijan (BBB-/Stable).
---
The billion dollar project designed to circumvent Armenia is on its way to becoming insolvent.
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