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Concorde Capital Research: S&P upgrades Ukrainian Railways rating to sovereign

August 05, 2019 | Cbonds

S&P Global Ratings upgraded the credit rating of Ukrainian Railways (RAILUA) to B- from CCC+ with a Stable outlook, according to the agency’s Aug. 2 report. The key event triggering the upgrade was the successful placement of a USD 500 mln Eurobond, which “removes pressure on liquidity,” S&P concluded. Namely, the raised money will allow the company to smoothly pay amortization on an old Eurobond over the next 12 months (USD 150 mln in September 2019 and USD 50 mln in March 2020).

Also, the agency expects the company will be able to generate enough cash to repay a Sberbank loan of UAH 6.4 bln (or about USD 240 mln) maturing in July 2020. S&P also highlighted that existing unrestructured debt for USD 153 mln does not affect the company’s solvency as this debt won’t trigger cross-default on the rest of the debt.

S&P expects Ukrainian Railways will achieve 2019-2020 operating results at least in line with the level of 2018 (when EBITDA amounted to UAH 16.2 bln) and its CapEx in these years won’t exceed UAH 13 bln.

The credit agency could downgrade Ukrainian Railways’ rating in case its liquidity worsens (e.g. if existing credit lines become unavailable, or if the firm increases its expenditures) or if S&P concludes the company won’t be able to accumulate enough liquidity to smoothly repay its Sberbank loan next year. The only possible short-term trigger for the company’s rating increase is an upgrade of Ukraine’s sovereign rating, S&P wrote.

Alexander Paraschiy: With this move, Ukrainian Railways’ S&P rating is equal to Fitch’s rating and the sovereign level. The move looks logical given that Ukrainian Railways indeed has addressed its key liquidity issue with the recent Eurobond placement. The proceeds from the Eurobond will be only enough to service the nearest payments on the old Eurobond (including repayment of the short-term loans the company took to pay USD 150 mln in amortization on the bond in March 2019).

So to secure the smooth repayment of Sberbank loans, the company will have to accumulate funds or seek refinancing. So far, both options look possible. Therefore, we do not see any risk for Ukrainian Railways' solvency unless market conditions deteriorate for the company.

We are keeping our neutral view on RAILUA Eurobonds.

Issue: Ukrainian Railway, 8.25% 9jul2024, USD

StatusCountry of riskMaturity (option)AmountIssue ratings (M/S&P/F)
outstandingUkraine07/09/2024-/-/B

Company: Ukrainian Railway

Full company nameUkrainian Railway
Country of riskUkraine
Country of registrationUkraine
IndustryTransportation

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