Page 45 - GEORptDec19

An augmented fiscal deficit of 2.5% of GDP was recorded in 2018 and Fitch expects higher capital spending in response to the current external shock will widen the augmented fiscal deficit to 2.7% of GDP in 2019, compared with a current BB median of 2.9%. A weaker currency will lead to an increase in gross general government debt (GGGD)/GDP to 45.7% of GDP in 2019 (BB median: 44.6%). But the IMF quantitative targets will provide a policy anchor to place GGGD/GDP on a downward trajectory in the medium term, further supported by a moderate recovery of the domestic currency.
The outcome of the 2020 parliamentary elections is uncertain given declining public support for the governing Georgian Dream coalition, according to independent observers' view, a fragmented opposition and the introduction of a proportional representation system with a zero threshold, Fitch commented. However, the rating agency does not expect a shift in policy direction, with the IMF programme (likely to be renewed in 2020), Nato accession talks, and maintenance of a close relationship with the EU providing solid anchors.
8.4.1​ ​International ratings - specific details of rating actions corp/regional etc
S&P upgrades Georgian Oil and Gas Corporation rating to BB-
S&P Global has raised its rating on Georgian Oil and Gas Corporation's (GOGC) long-term debt by one notch to BB-/stable. The move was in response to past action on the Georgia sovereign rating but also reflected diversification achieved by the construction of a gas-fired plant.
GOGC has the status of National Oil Company, protects state interests in the Production Sharing Agreements signed with investors and is the owner of the main gas pipeline system of Georgia.
It is viewed by the government of Georgia as critical to its national energy policy. GOGC is actively pursuing diversification of its business activities through constructing and operating gas-fired thermal power plants.
S&P said that the rating action on GOGC followed similar action on Georgia. It also reflected the rating agency’s view of a very high likelihood of extraordinary state support for the company and its unchanged stand-alone credit profile (SACP) of 'b+'.
“We believe the commissioning of the Gardabani II power station in late 2019 should help normalize financial metrics following the recent peak in capital expenditure (capex), with debt to EBITDA below 4x and funds from operations (FFO) to debt above 20% already in 2020m” S&P’s press release read.
In the base case for 2019, S&P currently assumed a temporary deterioration in credit metrics, spurred by higher gas purchasing costs versus flat domestic social gas prices and a peak in capex.
For 2019, the rating agency anticipated debt to EBITDA will peak at 4.7x and FFO to debt will decline to 16% (all ratios are on a gross basis). Still, it said it believed the launch of the Gardabani II power station in late 2019
45​ GEORGIA Country Report​ December 2019 ​ ​www.intellinews.com