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Profitability of Asia-Pacific gas utilities is likely to remain under pressure in 2026-27 due to elevated liquefied natural gas (LNG) prices and supply disruptions, although moderating capital expenditure and strong financial positions are expected to support cash flows and credit profiles across the sector over the medium term, Fitch Ratings said in a report.
"We expect most APAC gas utilities to maintain solid financial profiles with ample rating or Standalone Credit Profile (SCP) headroom," the rating agency said in its November peer credit analysis. The agency expects prolonged high LNG prices and supply disruptions following the Iran conflict. "Prolonged high LNG prices and supply disruptions following the Iran conflict are likely to weaken EBITDA margins at most APAC gas utilities in 2026, particularly LNG-reliant importers," the report said. However, the impact is expected to vary across markets depending on their exposure to spot LNG prices and the effectiveness of cost pass-through mechanisms. Chinese gas utilities are likely to face relatively limited pressure due to their lower exposure to spot LNG and established cost pass-through arrangements for commercial and industrial customers. On the cash flow front, Fitch expects capital expenditure trends to diverge across the region, with investment moderating at most Chinese gas utilities while spending rises in India and Indonesia due to pipeline network expansion and other infrastructure investments. "We expect FCF for rated APAC gas utilities to be broadly neutral in 2026-2027, supported by stable margins and moderating capex," the report said. The agency added that slower network expansion would help contain investment requirements for most Chinese operators, while higher spending on infrastructure and petrochemical businesses would keep cash flows under pressure in some other markets. Despite these challenges, the sector is expected to retain considerable financial flexibility, supported by low leverage, strong liquidity and access to domestic and international funding markets. Fitch forecasts average EBITDA net leverage across Asia-Pacific gas utilities to remain around 0.3 times in 2026-2027 before increasing to 0.5 times in 2028. "Funding access is strong for most Fitch-rated APAC gas utilities, as they are either state-owned or hold leading national or regional market positions," the report said. The agency also noted that EBITDA interest coverage across the rated portfolio remained above 6.5 times, providing additional support to the sector's credit strength. (ANI)
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