BAKU, Azerbaijan, July 12. Moody's expects the profitability of Azerbaijan's state oil company SOCAR to remain stable in 2025-26, Trend reports.
The rating agency notes that the macroeconomic environment for SOCAR has improved and the government's financial capacity to support the company, if needed, has strengthened, which is credit positive for the company.
"While SOCAR's financial performance weakened in 2023-24, compared with a record high in 2022, as the average brent crude oil price declined to $81-$83 per barrel from $101 per barrel over this period, it remains sound. The company's Moody's-adjusted EBITDA margin was 9.1% in 2023 and 10.1% in 2024, compared with 11.8% in 2022, 8.7% in 2021 and 6.2% in 2020. SOCAR also generated positive free cash flow (FCF) for the fourth year in a row thanks to solid operating cash flow, moderate capital spending and modest shareholder distributions. We expect the company's profitability and cash generation to remain stable in 2025-26," said Moody's.
SOCAR's gross leverage increased to 2.9x in 2024 from 2.4x in 2023 and 1.5x in 2022 but was below 3.4x in 2021 and 5.2x average in 2018-20. The increase in leverage in 2024 was driven by the consolidation of Southern Gas Corridor CJSC (SGC, Baa3 positive) in December 2024, as all debt and almost no earnings of SGC were included in SOCAR's financial statements that year.
"Gross leverage is likely to remain below 3.0x over the next 18 months under our oil price assumptions of $67 per barrel in 2025 and $65 per barrel in 2026. RCF/net debt should also remain healthy at around 30% in 2025-26 but lower than it was in the past. Finally, debt/book capitalisation continue improving gradually towards 25% in 2026 from 35% in 2022-24 and more than 40% in 2019-21," noted the rating agency.