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Rated gas utilities in the Asia-Pacific region are likely to maintain their strong credit profiles on rising demand and stable margins between 2024 and 2026, according to an analysis.
In its latest report, credit rating agency Fitch said that rated APAC gas utilities' average leverage is expected to remain stable over 2024-2026 on neutral overall free cash flow.
"We forecast an average EBITDA net leverage of 1.0x for the sector in the next three years, little changed from the average of 0.9x in the past three years," said the US-based agency in its report.
Natural Gas Consumption Resilient in APAC Region
According to the analysis, the resilient consumption of natural gas in the APAC region is one of the key factors which will drive the growth of these utilities in the coming years.
Fitch said that natural gas consumption in APAC remained resilient, increasing by 1.6 percent in 2023, while that in the rest of the world fell by 0.4 percent.
"Natural gas is not facing energy transition pressure in developing economies such as India or China, as it emits less carbon than coal and oil, although demand in developed countries has been weaker," added the agency.
Stable EBITDA Margin for Gas Utilities
According to the report, gas utilities in the APAC region are expected to generate stable earnings before interest, taxes, depreciation, and amortization margins, supported by regulated tariffs or cost pass-through mechanisms, especially in the absence of high purchasing cost volatility or major policy changes in the medium term.
"Fitch expects Chinese gas distributors' average dollar margins to improve slightly in 2024 and stay stable thereafter. Many provinces have been raising residential tariffs and adopting more efficient cost pass-through mechanisms since 2023," said Fitch.
It added: ".We expect stable transmission tariffs in India and low risks to gas sales margins in Vietnam due to government regulations. On the other hand, we have assumed the capped gas price policy will continue in Indonesia in the absence of clarity over an extension beyond 2024."
