BAKU, Azerbaijan, May 13. Moody's Ratings
(Moody's) has assigned Baa3 long-term local and foreign currency
issuer ratings and a baa3 Baseline Credit Assessment (BCA) to
Southern Gas Corridor CJSC (SGC), a state-owned company engaged in
the production of natural gas and condensate in Azerbaijan, as well
as their sale and transportation in the regional and European
markets, Trend reports.


The outlook is positive.


"SGC's Baa3 ratings and a positive outlook are aligned with
Azerbaijan's sovereign rating, reflecting the company's strategic
importance through its role in representing the state's interests
in flagship gas projects, as well as the state's direct and
indirect ownership and established track record of support,
including guarantees. The state currently directly owns 49% of
shares of SGC, while the remaining 51% is held by State Oil Company
of the Azerbaijan Republic (SOCAR, Baa3 stable), a wholly state
owned, integrated national oil and gas company. Despite the planned
sale by the state of a minority stake in SGC to XRG, an
international investment vehicle of Abu Dhabi National Oil Company,
by the end of 2026, we expect the state to retain its control and
influence over SGC's strategy and policies. Therefore, we consider
SGC a government-related issuer under our Government-Related
Issuers rating methodology, under which the company's rating
incorporates (1) a BCA of baa3, reflecting its standalone credit
strength, (2) the Baa3 foreign currency rating of Azerbaijan, (3)
very high default dependence between the company and the state, and
(4) a high probability of government extraordinary support in the
event of financial distress," reads the latest report by
Moody's.


The rating agency recalls that all of SGC's current outstanding
debt is explicitly guaranteed by the government, underpinning the
alignment of its final rating and BCA with that of the
sovereign.


"At the same time, while we consider SGC's BCA to be stronger
than its current level, close sovereign linkages and Azerbaijan's
high dependence on the oil and gas sector, which is also the
primary source of the company's revenue, are constraining factors
for the issuer rating and BCA.


The BCA is supported by SGC's strong business profile, with
large scale and integrated operations across the gas value chain.
The company holds interests in upstream gas production through its
stake in the production-sharing agreement for the Shah Deniz (SD)
field and in strategically important midstream infrastructure,
including the South Caucasus Pipeline (SCP), the Trans Anatolian
Natural Gas Pipeline (TANAP) and the Trans Adriatic Pipeline (TAP),
which together form a continuous export corridor from the Caspian
Sea through Azerbaijan, Georgia and Türkiye to Southern Europe.
Geographic diversification across multiple jurisdictions reduces
reliance on any single market and broadens the customer base, while
intergovernmental and host government agreements provide a robust
legal framework for operations, limiting exposure to adverse
regulatory or market developments in countries with weaker
operating environments. Strong market fundamentals, including
sustained demand for Azerbaijani gas in Türkiye and Europe, is
further reinforced by the strategic importance of the underlying
projects for regional energy security amid ongoing geopolitical
tensions related to the Russia-Ukraine war and conflict in the
Middle East," the report reads.


Moody's analysts point out that SGC's strong profitability and
earnings visibility are primarily driven by its stable, high margin
midstream operations, which accounted for around 65% of the
company's EBITDA in 2025 (before intragroup elimination of
transportation costs) as per Moody's assessment.







"Long-term gas transportation agreements include ship-or-pay
provisions, tariff indexation and cost recovery mechanisms,
supporting the company's results across commodity cycles. Long-term
gas sales agreements governing deliveries from the SD field also
include take-or-pay clauses that mitigate demand risk.


Despite these contractual protections, SGC remains exposed to
commodity price risks through its upstream segment, alongside risks
stemming from concentration on a single, albeit large, producing
field that has reached plateau production. Significant share of
contracted gas volumes and condensate sales have linkage to
commodity prices, introducing some volatility to operating results
of the upstream business. Nevertheless, we expect SGC to preserve
sound earnings and profitability, driven by the growing
contribution from the midstream segment, while the current spike in
oil and gas prices will further boost upstream performance in 2026.
Longer-term volume risk related to gradual natural production
decline at SD is partly mitigated by the ongoing investment
programme, which will support output from 2029, whereas potential
additional gas supplies from the country's other gas fields should
also help maintain future pipeline utilisation," notes Moody's.


The report says that along with sound operating performance,
SGC's financial profile is underpinned by moderate investment
requirements.


"Strong free cash flow generation and significant debt reduction
have led to a marked improvement in credit metrics, with Moody's
adjusted debt/EBITDA declining to 1.3x in 2024–2025 from 2.4x in
2023 and likely falling below 1.0x in 2026–2027, after the bullet
repayment of $2 billion Eurobonds in March 2026. SGC plans to
commence dividend distributions in due course, subject to
finalisation of its dividend policy. While distributions could
absorb a large share of annual cash generation, we expect the
company to preserve its sound financial profile and strong credit
metrics. The company has meaningful headroom under current leverage
metrics and a substantial cash buffer, including short-term,
interest bearing investments. Modest debt service requirements
further support SGC's strong liquidity.


Although SGC does not operate under formal financial policy
targets and governance considerations also reflect its concentrated
ownership structure and state control, the company has been
pursuing prudent financial management, supported by interactions
with international financial institutions. The company is also in
the process of further developing its financial policies and we
expect financial decision-making to remain balanced. The planned
entry of XRG as a minority shareholder will likely further support
enhancements in corporate governance," Moody's notes.


The rating agency says that SGC's BCA also reflects some
exposure to geopolitical risks related to the Middle East conflict,
given Azerbaijan's geographical proximity to Iran, although there
have been no operational disruptions to date, and we view this
exposure primary as an event risk. "In addition, SGC holds economic
interests in its assets but is not a direct operator, which
somewhat constrains the company's operational control. However,
this risk is partly mitigated by its mandate to represent the state
in these projects."