BAKU, Azerbaijan, May 13. Moody's Ratings (Moody's) has assigned Baa3 long-term local and foreign currency issuer ratings and a baa3 Baseline Credit Assessment (BCA) to Southern Gas Corridor CJSC (SGC), a state-owned company engaged in the production of natural gas and condensate in Azerbaijan, as well as their sale and transportation in the regional and European markets, Trend reports.
The outlook is positive.
"SGC's Baa3 ratings and a positive outlook are aligned with Azerbaijan's sovereign rating, reflecting the company's strategic importance through its role in representing the state's interests in flagship gas projects, as well as the state's direct and indirect ownership and established track record of support, including guarantees. The state currently directly owns 49% of shares of SGC, while the remaining 51% is held by State Oil Company of the Azerbaijan Republic (SOCAR, Baa3 stable), a wholly state owned, integrated national oil and gas company. Despite the planned sale by the state of a minority stake in SGC to XRG, an international investment vehicle of Abu Dhabi National Oil Company, by the end of 2026, we expect the state to retain its control and influence over SGC's strategy and policies. Therefore, we consider SGC a government-related issuer under our Government-Related Issuers rating methodology, under which the company's rating incorporates (1) a BCA of baa3, reflecting its standalone credit strength, (2) the Baa3 foreign currency rating of Azerbaijan, (3) very high default dependence between the company and the state, and (4) a high probability of government extraordinary support in the event of financial distress," reads the latest report by Moody's.
The rating agency recalls that all of SGC's current outstanding debt is explicitly guaranteed by the government, underpinning the alignment of its final rating and BCA with that of the sovereign.
"At the same time, while we consider SGC's BCA to be stronger than its current level, close sovereign linkages and Azerbaijan's high dependence on the oil and gas sector, which is also the primary source of the company's revenue, are constraining factors for the issuer rating and BCA.
The BCA is supported by SGC's strong business profile, with large scale and integrated operations across the gas value chain. The company holds interests in upstream gas production through its stake in the production-sharing agreement for the Shah Deniz (SD) field and in strategically important midstream infrastructure, including the South Caucasus Pipeline (SCP), the Trans Anatolian Natural Gas Pipeline (TANAP) and the Trans Adriatic Pipeline (TAP), which together form a continuous export corridor from the Caspian Sea through Azerbaijan, Georgia and Türkiye to Southern Europe. Geographic diversification across multiple jurisdictions reduces reliance on any single market and broadens the customer base, while intergovernmental and host government agreements provide a robust legal framework for operations, limiting exposure to adverse regulatory or market developments in countries with weaker operating environments. Strong market fundamentals, including sustained demand for Azerbaijani gas in Türkiye and Europe, is further reinforced by the strategic importance of the underlying projects for regional energy security amid ongoing geopolitical tensions related to the Russia-Ukraine war and conflict in the Middle East," the report reads.
Moody's analysts point out that SGC's strong profitability and earnings visibility are primarily driven by its stable, high margin midstream operations, which accounted for around 65% of the company's EBITDA in 2025 (before intragroup elimination of transportation costs) as per Moody's assessment.
"Long-term gas transportation agreements include ship-or-pay provisions, tariff indexation and cost recovery mechanisms, supporting the company's results across commodity cycles. Long-term gas sales agreements governing deliveries from the SD field also include take-or-pay clauses that mitigate demand risk.
Despite these contractual protections, SGC remains exposed to commodity price risks through its upstream segment, alongside risks stemming from concentration on a single, albeit large, producing field that has reached plateau production. Significant share of contracted gas volumes and condensate sales have linkage to commodity prices, introducing some volatility to operating results of the upstream business. Nevertheless, we expect SGC to preserve sound earnings and profitability, driven by the growing contribution from the midstream segment, while the current spike in oil and gas prices will further boost upstream performance in 2026. Longer-term volume risk related to gradual natural production decline at SD is partly mitigated by the ongoing investment programme, which will support output from 2029, whereas potential additional gas supplies from the country's other gas fields should also help maintain future pipeline utilisation," notes Moody's.
The report says that along with sound operating performance, SGC's financial profile is underpinned by moderate investment requirements.
"Strong free cash flow generation and significant debt reduction have led to a marked improvement in credit metrics, with Moody's adjusted debt/EBITDA declining to 1.3x in 2024–2025 from 2.4x in 2023 and likely falling below 1.0x in 2026–2027, after the bullet repayment of $2 billion Eurobonds in March 2026. SGC plans to commence dividend distributions in due course, subject to finalisation of its dividend policy. While distributions could absorb a large share of annual cash generation, we expect the company to preserve its sound financial profile and strong credit metrics. The company has meaningful headroom under current leverage metrics and a substantial cash buffer, including short-term, interest bearing investments. Modest debt service requirements further support SGC's strong liquidity.
Although SGC does not operate under formal financial policy targets and governance considerations also reflect its concentrated ownership structure and state control, the company has been pursuing prudent financial management, supported by interactions with international financial institutions. The company is also in the process of further developing its financial policies and we expect financial decision-making to remain balanced. The planned entry of XRG as a minority shareholder will likely further support enhancements in corporate governance," Moody's notes.
The rating agency says that SGC's BCA also reflects some exposure to geopolitical risks related to the Middle East conflict, given Azerbaijan's geographical proximity to Iran, although there have been no operational disruptions to date, and we view this exposure primary as an event risk. "In addition, SGC holds economic interests in its assets but is not a direct operator, which somewhat constrains the company's operational control. However, this risk is partly mitigated by its mandate to represent the state in these projects."
