Azeri SOCAR to borrow $20 bn to boost exports
Fitch warns SOCAR’S rating may worsen
Azeri state energy firm SOCAR plans to borrow more than $20 billion over the next five years to finance energy projects to help boost gas exports to Europe, a challenge to plans by neighboring Russia. SOCAR, one of the world’s oldest oil companies, wants to send gas to Europe, hoping to capitalize on a desire in European capitals to diversify their supply from Russia after Moscow’s “gas wars” with Ukraine disrupted supplies in 2006 and 2009.
The plan to tap its Shah-Deniz II project for an expected 16 billion cubic meters per year (bcm/y) of gas to Europe is in direct competition to the South Stream pipeline project, led by Azerbaijan’s former Soviet master, Russia. Vice President Suleiman Gasymov said he would approach foreign banks as well as turning to the state oil fund to pay for a $5 billion refinery in Turkey, a $17 billion oil and gas processing and petrochemical complex, the $8 billion TransAnatolian natural gas pipeline project (TANAP) and new drilling rigs on the Caspian Sea worth $4 billion.
“SOCAR starts implementation of four projects with a total estimated cost of $33 billion-$35 billion from 2013,” he said in an interview. “Sixty-five percent of the cost will be provided by bank cred- its, while the remaining 35 percent (will come) from Azerbaijan’s own resources, mainly the state oil fund.” SOCAR is a sole shareholder in three projects and controls the TANAP project aimed at taking Azeri gas to Turkey and to markets in Europe.
Construction of the TANAP pipeline, which will be built from the Turkish-Georgian border to Turkey’s border with Europe, is expected to start at the end of 2013 and the project’s first phase is seen ready at the end of 2017 or early 2018. South Stream, which will stretch more than 2,000 km to northeast Italy, is expected to be built by the end of 2015, its chief executive of the offshore section said earlier this month. New drilling rigs on the Caspian Sea will be built for SOCAR by Singapore’s Keppel.
CREDIT RATINGS
But credit ratings agency Fitch said in April that further investment or acquisitions by SOCAR would result in “a significant and sustained deterioration of credit metrics (which) would be negative for the ratings”. Fitch’s rating in April was BBB. In March 2013, SOCAR placed a $1 billion 10year Eurobond with 4.75 percent coupon to refinance part of its existing debt and for its capital investment program. The company’s debut Eurobond issue was in February 2012.
Gasymov dismissed concerns over increasing SOCAR’s debt. “There are no risks for Azerbaijan over financing of these projects, because the state is behind them and we have a high international rating,” he said, adding that SOCAR planned to borrow funds mainly in export-import banks abroad. Fitch cut Azerbaijan’s sovereign-credit grade outlook to BBB- earlier this month because the Caspian Sea nation raised spending as oil output declined.
Gasymov said the European Bank for Reconstruction and Development, the World Bank and some foreign commercial banks had already expressed interest in funding one of the projects- construction of a new refinery at Aliaga in western Turkey, which is expected to be completed by 2016. Azerbaijan’s $34 billion state oil fund holds proceeds from oil contracts, oil and gas sales, transit fees and other revenues and uses investment proceeds to help finance social spending and infrastructure projects. Apart from transfers to the Azeri state budget, it invests in real estate abroad and plans to spend about $1 billion on buying commercial property this year, mainly in Asia and Australia. — Reuters