Fitch assigns Southern Gas Corridor CJSC 'BBB-' IDR with stable outlook

Fitch Ratings has assigned Southern Gas Corridor Closed Joint-Stock Company (SGC) a Long-Term Issuer Default Rating (IDR) of 'BBB-' with a Stable Outlook, Report informs.

"Based on Fitch's Government-Related Entities (GRE) Rating Criteria, SGC's rating is equalised with that of Azerbaijan (BBB-/Stable), its ultimate parent, reflecting that all SGC's debt is secured by government guarantees, and we expect this to remain the case over the rating horizon.

The company's Standalone Credit Profile (SCP) of 'bbb-' benefits from strong cash flow generation, with good visibility of the long-term contracted gas transportation business, large scale and a very strong financial profile.

The SCP is constrained by the price volatility in the upstream segment, natural depletion of Shah Deniz natural gas-condensate field, and counterparty risk and operating environment limitations in Azerbaijan, Georgia and Turkiye," reads the message.

"The Azerbaijani government has control over SGC and significant influence over strategic decisions and financial profile, demonstrating robust oversight. In 2014, the state injected equity of around $2.4 billion and State Oil Fund of Azerbaijan acquired $2.5 billion of SGC bonds (repaid in 2024).

We expect SGC's rating construction to be unchanged following the potential sale of a stake in the company to XRG, an investment platform of Abu Dhabi National Oil Company. We believe Azerbaijan will keep control and decision-making power of SGC. The transaction may be positive from a corporate governance and technological perspective, and ease access to financing if parties decide to increase projects' capacity," Fitch noted.

Southern Gas Corridor CJSC is owned by Azerbaijan (49%) and the State Oil Company of Azerbaijan (51%).

The Southern Gas Corridor was built to export gas from the Caspian region to Europe. Azerbaijan began exporting gas through it on December 31, 2020. The main components of the Southern Gas Corridor are: Stage 2 of the Shah Deniz project, the expansion of the South Caucasus Pipeline from Baku to Georgia to the Turkish border, the construction of the Trans-Anatolian Natural Gas Pipeline (TANAP) from Türkiye's eastern to western border, and the Trans-Adriatic Pipeline (TAP), connecting Greece, Albania, and southern Italy.

Given the increasing demand for Azerbaijani gas, the Southern Gas Corridor is planned to be expanded by increasing the capacity of the TANAP and TAP pipelines for supplies to Europe.