Research Update: Uzbekneftegaz Downgraded To 'B+' From 'BB-' On Weaker Credit Metrics And Tight Liquidity; Outlook Stable

Following two consecutive years of underperformance, we expect that Uzbekneftegaz's (UNG)'s leverage will remain high in 2023-2024, as the ramp up of gas-to-liquids (GTL) operations continues while interest expenses will roughly double in 2023 and remain high in 2024-2025. This will result in UNG posting funds from operations (FFO) to debt of 7%-12% in 2023 and 10%-14% in 2024. At the same time, we believe the sizable investments required to maintain gas production will continue to weigh on cash flow generation. The company's liquidity will remain constrained for the next two years, with large maturities of about $550 million per year and increasing maintenance capital expenditure. We therefore lowered our long-term issuer credit rating on UNG and our issue rating

...- Following two consecutive years of underperformance, we expect that Uzbekneftegaz's (UNG)'s leverage will remain high in 2023-2024, as the ramp up of gas-to-liquids (GTL) operations continues while interest expenses will roughly double in 2023 and remain high in 2024-2025. This will result in UNG posting funds from operations (FFO) to debt of 7%-12% in 2023 and 10%-14% in 2024. - At the same time, we believe the sizable investments required to maintain gas production will continue to weigh on cash flow generation. - The company's liquidity will remain constrained for the next two years, with large maturities of about $550 million per year and increasing maintenance capital expenditure. - We therefore lowered our long-term issuer credit rating on UNG and our issue rating on its bond to 'B+' from '##-'. - The stable outlook balances our expectation of limited prospects for material deleveraging over the next 12-24 months and our view of extremely high likelihood of government support....

Research Update