The downgrade was caused by high capital expenditures, aggressive financial policies and the fact government support may not be sufficient to compensate for the risks associated with high and growing indebtedness of SOCAR, the report says.
At the same time, the agency believes that the state, if necessary, will provide proper support to SOCAR, since the company is a "key asset in the oil and gas sector" for the government.
S & P is considering increasing the share of SOCAR in the Azeri-Chirag-Gunashli project development project to 25% from 11.6% as "a clear sign of continued support to the company."
The agency stresses that SOCAR is subject to risks associated with the weak banking system of Azerbaijan. At the same time, the agency notes that the recent problems related to the restructuring of the external liabilities of the International Bank of Azerbaijan (IBA) have had a limited impact on SOCAR.
"We also believe that the company faces certain currency risks, since most of its debt and capex are denominated in US dollars," the press release said.
However, the agency stressed that the liquidity of SOCAR is still manageable.
S & P believes that the upgrade of SOCAR's ratings in the next two years remains under the question due to the company's significant debt.
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