Tashkent, Uzbekistan (UzDaily.com) —  S&P Global Ratings has confirmed the long-term credit rating for the obligations of Uzbekneftegaz JSC (UNG) at ‘B+’, with the outlook revised from negative to stable.

The updated outlook reflects improvements in the company’s liquidity management and the stability of its financial performance, which suggests a gradual improvement in liquidity over the next one to two years.

S&P analysts noted that despite factors affecting UNG’s credit profile, no further liquidity deterioration is expected. Currently, the company’s liquidity sources-to-uses ratio stands at 0.6x, consistent with the previous year. However, due to improved operational performance and increased cash flow, this ratio is expected to gradually improve to 1.0x by 2025-2026.

The support from the government is also factored into the rating, as it will assist the company in refinancing upcoming debt obligations. UNG has also demonstrated a more proactive approach to addressing refinancing issues, having secured exemptions from potential breaches of financial covenants last year, minimizing default risks. Furthermore, the government is monitoring the situation and is prepared to provide support if liquidity shortfalls arise.

To improve EBITDA performance, the company is relying on increased gas tariffs and dividends from joint ventures such as Uz-Kor Gas Chemical LLC and Uztransgaz.

UNG’s EBITDA is expected to reach 15-16 trillion soums in 2024, an improvement from 12.1 trillion soums in 2023. The debt restructuring strategy, under which UNG acquired a stake in Uztransgaz, has also helped reduce the company’s financial guarantees and long-term obligations.

Going forward, with rising gas tariffs and dividend payouts, EBITDA and operating cash flows are expected to continue growing. By 2025, EBITDA may reach 17.5-18.5 trillion soums, and by 2026, it could grow to 20-21 trillion soums. However, to maintain production stability, the company will need to continue increasing investments in gas field development. This may also imply potential gas tariff hikes, which are still under regulatory discussion.

As EBITDA and cash flows improve, UNG’s FFO-to-debt ratio is expected to improve to 20% by 2025-2026. A prudent dividend distribution policy and control over capital expenditures will help maintain this ratio at a level that supports the company’s financial stability.

While stability prospects remain intact, if the company’s operational results deteriorate significantly, leading to a decline in cash flows and debt load below 12%, the rating may be downgraded. On the other hand, if liquidity improves substantially and the liquidity sources ratio exceeds 1.2x, there is a possibility of an upgrade to ‘BB-’.