Azerbaijani state rail operator mulls debt restructuring

Azerbaijani state rail operator mulls debt restructuring
Baku Railway Station.
By bne IntelliNews June 19, 2017

State-owned Azerbaijan Railways (ADY) has issued a request for proposals for a financial adviser to explore options for the financing of future capital expenditures and the possible refinancing of existing liabilities, the company announced on June 15.

ADY did not provide further details about the expenditures and liabilities it needs assistance with. Its cryptic press release is typical of Azerbaijani public companies and of ADY in particular, and could indicate that it is facing problems repaying some of its debt. Creditors are on guard about Azerbaijani public companies after the country's largest bank, International Bank of Azerbaijan, defaulted on its foreign obligations in May.

ADY did not respond to a request for further comment.

Previously a good debt repayer, Azerbaijan has been struggling with mounting debt resulting from a number of large-scale infrastructure projects and lower revenues from oil and gas exports.

Concerns about ADY's ability to repay its debt have been lurking since late 2016, when the railway company was three days late in repaying one of its loans because of a delay in receiving money from the finance ministry, prompting ratings agency Standard & Poor's to note that "there is a lack of evidence that the Republic of Azerbaijan has the processes and procedures in place to enable effective governance, monitoring and control of ADY. Reflecting our ongoing concerns regarding a lack of communication and provision from ADY, we are revising downward the stand-alone credit profile to 'b-' and we now assess ADY's liquidity as less than adequate".

Shortly after, in early 2016, both S&P and Fitch withdrew their ratings of ADY, which had been downgraded to 'BB-' and 'BBB-' respectively, both with negative outlooks, at the company's request.

In a statement in 2015, Fitch Ratings noted that ADY's then-AZN288mn debt was not guaranteed by the government, despite the fact that the company is state-owned in its entirety.

Despite overseeing a series of railway upgrades in recent years, including a new connection to Turkey via Georgia that is expected to be inaugurated this year, ADY has been grappling with declining freight volumes in recent years as a result of an economic slowdown in the region that led to a reduction in overall commerce.

The Asian Development Bank (ADB) has repeatedly postponed a decision on ADY's request for a $200mn to finance a railway link on the North-South transport corridor that connects Iran to Russia. The decision has now been postponed until August.