Fitch upgrades independent credit rating of Uzbektelecom to 'bb'

The international rating agency Fitch Ratings has assigned long-term issuer ratings in foreign and local currencies of 'BB-' to the Andijan region, maintaining a stable outlook. These ratings were announced by the agency on November 9, 2026.

The region's ratings correspond to its own Credit Profile (SCP), which is also rated as 'bb-'. Fitch expects that the debt service coverage ratio of the Andijan region will remain below nine times within the base case scenario until 2030.

The agency characterized the region's risk profile as weak, assessing its financial profile at the lower end of the 'aa' category. Factors influencing this assessment include dependence of revenues on central government decisions, limited capacity to independently increase revenues and cut expenditures, as well as specific features of debt and liquidity management.

In 2025, taxes accounted for 49% of the Andijan region's operating revenues, while transfers provided another 43%. In comparison, in 2021, the share of taxes was 37%, and transfers were 56%.

Fitch noted that the region's ability to independently increase revenues is limited because tax rates and the distribution of tax revenues among budget levels are determined by the central government. Furthermore, over 90% of expenditures between 2021 and 2025 were classified as inflexible. In 2025, wages accounted for about 46% of operating expenses.

As of the end of 2025, the region's cash balance reached 205 billion soms, a significant portion of which was reserved for specific expenditures. Access to debt capital markets is restricted by national legislation, but the region can use the central government's short-term budget loan mechanism to cover temporary cash shortfalls.

According to the rating scenario, Fitch forecasts that the debt service coverage ratio will peak at 8.2 times by 2030. The average coverage of actual debt service from 2026 to 2030 is expected to be at 2.4 times, and the budget debt burden will remain below 50%.

Among the key economic characteristics of the region, the agency cited a population of 3.5 million people, accounting for about 9% of Uzbekistan's total population. The gross regional product per capita is approximately 60% lower than the national level. The region's economy combines intensive agriculture with automotive manufacturing.

Fitch named the Fergana and Jizzakh regions, as well as Tashkent, as comparable regions, all of which have been assigned the same 'BB-' rating with a stable outlook.

The international rating agency Fitch Ratings assigned the Joint Stock Company of National Electric Networks of Uzbekistan (NEGU) its first long-term credit rating of 'BB' with a positive outlook on November 3, 2026.

This rating corresponds to Uzbekistan's sovereign rating, which is also 'BB' with a positive outlook. The agency explains this correspondence by citing the share of state-guaranteed debt as the main reason.

According to Fitch Ratings, about 90% of the company's debt as of the end of 2025 and in the first half of 2026 is either backed by state guarantees or provided directly by the state. Most of this debt comes from loans from international financial institutions.

Fitch expects this share to remain above 75% at least until 2028, even if some new investment projects are financed without guarantees. If the share drops below 75%, the agency may change its approach to rating determination.

Meanwhile, Fitch assesses the company's standalone credit profile as 'b'. This assessment is limited by the country's short regulatory experience, limited transparency, risks associated with transmission volumes and counterparties, and weak financial flexibility.

Among the factors contributing to the strengthening of the company's position are its monopoly in electricity transmission, industry reforms including the separation of trading activities, and expected high profitability. Fitch notes that the rating may improve as fair regulation experience develops.

After establishing a single buyer in 2024, NEGU gradually separated its loss-making trading activities. Fitch believes this has contributed to increasing the company's profitability and reducing cash flow volatility.

The government plans to complete the transition to tariffs based on a regulated asset base starting in 2027. Some elements of the new system were introduced during the tariff review in August 2026. Following three increases during 2025–2026, NEGU's electricity transmission tariff in August 2026 doubled the 2024 level.

The company itself forecasts an annual tariff indexation of approximately 5% starting in 2027. Fitch's forecasts suggest growth of about 11% in 2027 and approximately 5% annually from 2028 onwards.

At the same time, the agency points to limitations in the regulatory framework. The company operates based on short-term tariff decisions, and mechanisms to protect against reduced transmission volumes, ensure fair return on investment, and regulator response to inflation or currency devaluation have not been fully tested.

Fitch also identifies potential interference in tariffs for political or social reasons, as well as the absence of an independent regulator, as risks. NEGU's key counterparty, the single buyer, acts only as an intermediary in the flow of funds, so the company depends on the payment discipline of end consumers. Furthermore, it relies on a non-transparent mechanism for distributing payments among market participants, over which it has no control.

Due to aging infrastructure and growing electricity demand, the company faces significant investment needs. Its business plan includes capital expenditures of $1.5 billion between 2026 and 2030. These funds will be directed towards connecting new generation capacity, improving network reliability and digitalization, and developing high-voltage transmission lines.

Most projects require government approval and funding. Multilateral financial institutions are expected to finance about half of the program, while the remainder will be covered by public-private partnerships and the company's own resources.

Fitch forecasts that the company's free cash flow will be negative during 2026–2030, averaging about 1 trillion soums ($80 million) annually. EBITDA is projected to average 3.5 trillion soums ($280 million) per year, while capital expenditures are expected to reach 3.7 trillion soums ($295 million). This forecast does not include dividend payments. The FFO-adjusted leverage ratio is expected to decrease to an average of around 4x during 2026–2029, compared to 6.7x in 2025.

About 90% of the company's debt at the end of 2025 was denominated in foreign currency, while revenue is generated in soums. Hedging instruments in Uzbekistan are limited. However, Fitch anticipates a moderate depreciation of the sum against the US dollar, averaging 2% annually, which limits the impact of currency risks on its forecasts.

Fitch rates the state's willingness to support the company as high. The state fully controls NEGU, approves its strategy and investment plans, and sets tariffs. In 2024–2025, the company received network assets worth about $400 million from other state enterprises free of charge.

Fitch also considers NEGU's role as a natural monopoly and the strategic importance of its projects for the development of renewable energy sources and public-private partnerships. The company employs about 9,000 people.

As of the end of June 2026, NEGU had cash reserves of 481 billion soums ($40 million) compared to short-term debt of 546 billion soums ($46 million). Repayments to third parties are expected to amount to about 500 billion soums ($40 million) annually from 2027–2029.

The company plans to cover its negative cash flow through new bank loans. In 2026, NEGU expects to receive $145 million under guaranteed credit lines from international banks. The government has also signed an agreement to obtain an investment loan of $200 million from the Asian Development Bank, the funds of which will be transferred to the company.

The rating could be downgraded if the outlook for Uzbekistan's sovereign rating is changed to 'Stable' or if the sovereign rating itself is lowered. Another potential trigger could be a drop in the guaranteed debt share below 75%. A rating upgrade is possible if the sovereign rating improves, provided the state continues to guarantee more than 75% of the company's debt.

The international rating agency Fitch Ratings confirmed the long-term ratings of the issuer Turonbank in foreign and local currencies at 'BB-' on November 3, 2026. Additionally, the bank's outlook was assessed as positive, and its Viability Rating was confirmed at 'b-'.

The bank's long-term ratings reflect a moderate probability of state support. Uzbekistan's sovereign rating is 'BB' with a positive outlook, while Turonbank's State Support Rating is set at 'bb-'.

Fitch bases this assessment on the state's ultimate ownership of the bank, an improved history of capital injections, and close government involvement in its operational activities. The positive outlook for the bank's rating aligns with the outlook for Uzbekistan's sovereign rating.

The State Support Rating is one step below the sovereign rating. Fitch believes this reflects Turonbank's limited systemic and strategic importance to the state. It is planned that the bank will be privatized in the long term, and Turonbank itself is relatively small and does not have a clearly defined role in state policy.

Over the past two years, the state has provided more active support to the bank, although historically Turonbank has received less new capital compared to most other state banks in Uzbekistan. Fitch believes that support will continue as long as the state maintains a controlling stake.

The 'b-' Viability Rating reflects the bank's small scale of operations, vulnerable asset quality, moderate profitability, and significant reliance on wholesale funding. Nevertheless, Fitch notes improvements in core capital adequacy and liquidity stability.

Fitch also upgraded its assessment of the operating environment for banks in Uzbekistan from 'b' to 'b+', assigning it a Stable Outlook instead of the previous Positive. This decision is due to progress in banking reforms over the last two years, especially efforts to strengthen regulation and eliminate outdated risks.

The country's economy grew by 8.5% year-on-year in the first half of 2026. Fitch believes this should support business growth for banks and, in the medium term, their profitability and capital.

By the end of the third quarter of 2026, Turonbank accounted for 2% of the total assets of the banking sector. Most loans were issued to corporate clients and small and medium-sized enterprises, which made up 77% of the loan portfolio as of the end of 2025. A significant portion of its funding comes from the state, accounting for 44% of the bank's liabilities.

These funds are used to provide preferential loans under state programs, including to state-owned companies, which constitute 23% of the bank's loans. The bank intends to strengthen its focus on commercial lending.

Non-performing loans amounted to 4% of the total portfolio as of the end of 2025 and were almost entirely covered by reserves. Stage two loans, which Fitch considers high-risk, accounted for another 12%. Agriculture, which the agency classifies as a troubled sector, represented 17% of the loan portfolio. Foreign currency loans accounted for 47%, but these risks are mitigated by the fact that half of the foreign currency loans were issued to the state sector and guaranteed by state guarantees.

The bank's operating profit in 2025 was 0.1% of risk-weighted assets, compared to 0.4% the previous year. Fitch attributes this primarily to the low margin on corporate lending, including subsidized loans. The agency considers the bank's loan loss provisions to be unstably low, and the return on average capital remains only in the single digits.

Fitch's core capital ratio was 10% at the end of 2025, which is below the level stated by most Uzbek banks rated by the agency. According to Fitch, this figure increased to approximately 12% by the third quarter of 2026 after a significant capital injection from the state. The agency expects the bank to continue receiving capital from the authorities to support subsidized lending.

Wholesale borrowings accounted for 31% of the bank's liabilities at the end of 2025. They mainly consist of long-term loans from international financial institutions, which are usually renewed upon maturity. Funds from non-state clients accounted for only 25% of liabilities. Liquid assets accounted for 14% of total assets at the end of the third quarter of 2026. These were sufficient to fully cover external wholesale debt obligations due within the next 12 months.

The bank's ratings may be downgraded following downgrades of Uzbekistan's sovereign ratings. A downgrade is also possible if Fitch concludes that the state's willingness to support the bank has weakened. This could happen as the bank moves away from the state during the privatization process.

Another potential trigger is the sale of the bank to a strategic investor with a rating below sovereign or no rating. The Viability Rating could be lowered if the bank's capital significantly decreases, non-performing loans sharply increase, or losses to loan loss provisions rise.

An upgrade of Uzbekistan's sovereign ratings could lead to a similar decision regarding Turonbank's ratings. An exception would be a situation where privatization is likely to take the bank out of state ownership within the assessment horizon. To ensure an upgrade of the Viability Rating, the bank will need to achieve sustained improvement in asset quality and profitability, as well as strengthen its capital.

Fitch assigned Turonbank an ESG rating of '4' under the 'Corporate Governance Structure' factor. The agency explains this rating by the extensive involvement of authorities in the bank's supervisory board, its business development, and strategy, which negatively affects its credit profile.