S&P views Uzbekneftgas negatively

S&P said it changed its outlook for Uzbekneftgas to negative from stable and affirmed the company’s BB- rating.

“Uzbekneftegaz's operating performance weakened after the state lowered the gas tariff in the second half of 2021 and the gas-to-liquids (GTL) plant was delayed, resulting in funds from operations (FFO) to debt of 6.8% in 2021 and 5.4% in the first half of 2022, which are materially lower than our minimum threshold of 12% for the current rating,” the agency said in a press release.

The company’s lower-than-expected cash flows have weakened the issuer’s liquidity and do not fully cover the $500 million maturing over the next 12 months and the $450 million in the following 12 months; however, S&P noted Uzbekneftgaz is working on financial arrangements.

“Still, we understand that, after almost a year of delays, the GTL plant is finally ramping up and the gas tariff was raised to the previously expected level in September 2022, which should support cash flow generation and lead to improved liquidity and credit metrics,” the agency said.

S&P warned it could downgrade Uzbekneftgas if it continues underperforming with weaker-than-forecasted cash flows resulting in FFO to debt under 12% or the liquidity sources-to-uses ratio is below 1.2x in 2023.

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