Baku: Moody’s Ratings has announced an upgrade for the State Oil Company of the Azerbaijan Republic (SOCAR), assigning it a Baa3 long-term issuer rating. This marks a transition to investment grade as Moody’s withdraws the previous Ba1 corporate family rating and the Ba1-PD probability of default rating, APA reports citing the agency. The ba2 Baseline Credit Assessment (BCA) remains unchanged, and the outlook has been shifted from positive to stable.
According to Azeri-Press News Agency, this rating action aligns with the recent upgrade of the Government of Azerbaijan’s ratings to Baa3 from Ba1 on July 4, 2025, with a maintained positive outlook. The improvement in SOCAR’s rating reflects its robust financial performance and credit metrics despite challenging conditions in the oil and gas market. Additionally, SOCAR’s strategic significance to the Azerbaijani government and an improved approach to strategic and shareholder decisions have contributed to this upgrade. However, challenges such as lackluster ups
tream performance and limited transparency still exist.
The sovereign rating upgrade is indicative of enhanced institutional effectiveness in Azerbaijan, demonstrated by a consistent record of maintaining macroeconomic stability amidst recent economic shocks and oil price fluctuations. The country has made strides in regulatory reforms, bolstering the banking sector’s stability, and continues to reduce its fiscal reliance on hydrocarbon revenues. Azerbaijan’s efforts towards economic diversification are also advancing, with the transport sector experiencing rapid growth.
For SOCAR, the improved operating and macroeconomic conditions and the strengthened financial capacity of the Azerbaijani government to support the company are credit positives. Given SOCAR’s full state ownership, Moody’s applies its Government-related Issuers (GRI) methodology for the company’s rating. The Baa3 issuer rating takes into account SOCAR’s ba2 BCA, Azerbaijan’s Baa3 issuer rating, high default dependence between the state and t
he company, and the high likelihood of government support in financial distress.
Despite a dip in financial performance in 2023-24 due to declining oil prices, SOCAR’s financial health remains strong. The company’s EBITDA margin varied but stayed resilient over recent years, and it has consistently generated positive free cash flow. Moody’s forecasts stable profitability and cash generation for SOCAR in the coming years.
SOCAR’s credit metrics reflect its sound financial standing despite an increase in gross leverage to 2.9x in 2024 due to the consolidation of Southern Gas Corridor CJSC. Moody’s projects leverage to remain under 3.0x, supported by assumed oil prices of $67 per barrel in 2025 and $65 in 2026. SOCAR’s liquidity is sound, with sufficient cash reserves and forecasted cash generation to cover upcoming debt maturities and acquisitions.
While SOCAR has experienced a short-term decline in oil and gas production, it anticipates stable production levels in the medium to long term. The company is exp
anding internationally, acquiring stakes in offshore oil and gas fields, which supports its output.
SOCAR’s key role in Azerbaijan’s oil and gas sector and its ties to the government, which is financially equipped to provide support, boosts its credit quality. Strategic and financial discipline has improved, and the government’s recent transfer of control over SGC to SOCAR underscores its supportive stance. However, SOCAR faces challenges due to its complex organizational structure, limited transparency, and volatile trading operations, which affect financial predictability and leverage. Its concentrated operations in Azerbaijan and the need to support investments like Petkim Petrokimya Holding A.S. also pose potential risks.