Azerbaijan is mulling issuing another $1bn Eurobond and borrowing $500mn from the World Bank to finance the large-scale gas exploration and transport scheme, the Southern Gas Corridor (SGC).
The country founded a designated state-owned company SGC to run the domestic part of the project, which encompasses several other countries - Georgia, Turkey, Greece, Albania and Italy. SGC's CEO Afqan Isayev told APA news agency on June 1 that Azerbaijan will be funding $13.5bn of the project, which has an estimated total cost of $46bn.
SGC issued a $1bn Eurobond in March, the yield of which has declined by 45 basis points (bp) to 6.49% since. Though falling, the yield is still higher than the 5.33% yield of the Azerbaijani government's $1.2bn inaugural Eurobond issuance.
SGC comprises offshore developments at the Shah Deniz II gas field in Azerbaijan and a network of three interconnected pipelines that will deliver some 16bn cubic metres (cm) of gas to Turkey and Europe by 2020.
To date, SGC's funding has come from a combination of state finances and capital markets. The government has injected some $1.7bn in SGC to date, and Socar has raised $1.5bn in bonds in 2012-2013. Baku raised $1.2bn in its February 2014 inaugural Eurobond issue.
Ratings agency Fitch estimates that SGC will need some $8.4bn in financing in 2016-2019, and expects it to tap into capital markets for funding in the medium term, with bonds and loans supplemented by state capital injections if market terms are unacceptable.
Several international financial institutions (IFIs), including the World Bank and the European Bank for Reconstruction and Development (EBRD) have expressed an interest in financing part of the project.
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