S&P downgrades Georgian Oil and Gas Corporation outlook

The international rating agency Standard & Poor's (S&P) revised the outlook for the Georgian Oil and Gas Corporation to negative from stable. The 'B+ long-term corporate credit rating was affirmed by the agency. The outlook revision primarily reflects the revision of the agency's base-case scenario for GOGC. 

"We understand the company is now contemplating increasing its investments in 2016-2017. Having successfully completed construction of the Gardabani thermal power plant in late 2015, GOGC is currently considering investing into an extension of this project, estimated at $200 million-$250 million, and constructing an underground gas storage facility worth another $250 million. This will require an increase in debt financing and means that the company might be able to deleverage only if both projects are successfully launched, which will not happen before 2018," the statement says.

The statement also notes that GOGC's financial risk profile is constrained by relatively high leverage and sizable investments required to finance its growth projects. 

S&P reminded that the company "issued a loan of 47 million lari to its 'sister' state-controlled entity in 2012". "Although the loan is interest-bearing and we assume it will be repaid to GOGC and that the pledged cash will be released by 2017, these transactions heighten the risk that GOGC's funds might be used to finance the activities of other Georgian GREs," the agency added.