Tashkent, Uzbekistan (UzDaily.com) —  Fitch Ratings has affirmed the long-term Issuer Default Rating (IDR) of Uzbekneftegaz JSC (UNG) at ‘BB-’ with a Stable Outlook.

The rating for UNG’s senior unsecured debt was also affirmed at ‘BB-’ with a Recovery Rating of ‘RR4’.

UNG’s rating is aligned with Uzbekistan’s sovereign rating (‘BB-/Stable’), reflecting the company’s status as a fully state-owned, vertically integrated producer of natural gas and liquid hydrocarbons with strong ties to the government.

UNG’s standalone credit profile (SCP) remains at ‘b’. The increase in natural gas prices in Uzbekistan in 2023 and 2024 positively impacted UNG’s financial profile. Further price liberalization, along with improved liquidity, could enhance the company’s SCP.

Fitch assesses decision-making and control factors as "very strong" under the rating criteria for government-related entities (GREs). Full state ownership and control underscore the government’s commitment to ensuring the company’s stability and operational efficiency. Regulated natural gas prices remain a key driver of UNG’s profitability, reflecting the influence of the state on its operations.

Fitch also views the government’s support as "very strong." State guarantees covered 54% of UNG’s consolidated debt as of the end of June 2024. While this share is expected to decline, government support is also evident in the liberalization of fuel prices, tax benefits, and reduced dividend payouts, ensuring effective debt servicing and operational resilience.

UNG’s role as a state entity is rated as "strong." The company is a critical supplier of energy resources for domestic industries, with natural gas being essential for power generation, heating, and transportation. Additionally, UNG is one of Uzbekistan’s largest employers. Contagion risks are rated as "strong" due to UNG’s substantial borrowing, albeit smaller compared to the government’s debt.

UNG’s individual ‘b’ profile and GRE support score of 40 out of 60 align the company’s rating with the sovereign rating.

Price liberalization for natural gas in Uzbekistan is ongoing. Tariffs rose to $48 per thousand cubic meters (mcm) in 2023 and 2024, compared to $28 in 2022, with full liberalization planned by 2028. Although Fitch projects slower price growth than UNG’s management anticipates, liberalization is expected to significantly boost the company’s profitability.

UNG’s natural gas production decreased from 33.9 bcm in 2021 to 29.2 bcm in 2023. Ten percent of the company’s fields account for 70% of output, but asset depletion has led to a decline in production volumes. Management reports that the decline was halted in 2024, with moderate production growth planned.

As of the end of 2022, UNG’s guarantees amounted to UZS 13 trillion, primarily issued for gas purchases by its former subsidiary Uztransgaz. In 2023–2024, these obligations were converted into UNG’s 46.8% equity stake in Uztransgaz. This reduction in cash outflow risk positively affected UNG’s SCP, although the government remains ready to support Uztransgaz.

Low utilization of the GTL plant has pressured UNG’s results. The plant’s capacity is 3.6 bcm of products, including diesel, naphtha, kerosene, and liquefied gas. Full plant utilization is expected by 2026, which Fitch views as a positive factor for the company’s credit profile.

UNG’s total hydrocarbon production in 2023 amounted to 520,000 barrels of oil equivalent per day. However, per-barrel profitability remains weak due to regulated gas prices. Nearly all production consists of natural gas. The proven reserves lifespan is 13 years, which Fitch deems adequate.