Ukrzaliznytsia plans UAH 108 bln for rolling stock renewal in five years

The board of Ukrainian railway monopoly Ukrzaliznytsia (UZ, RAILUA) approved a five-year plan of renovating its rolling stock at a total value of UAH 108 bln, its press service reported on Nov. 30. The plan assumes the modernization and purchase of 96,000 railcars, including 9,000 units already in the next year.

Alexander Paraschiy: Ukrzaliznytsia always had ambitious plans of upgrading its railcars and locomotives, none of which have been fulfilled, primarily due to a lack of financing. This time, with the April appointment of a new and hopefully more efficient management, there is a chance that UZ will be able to meet the plan.

The key risk in that plan is that the company does not earn as much as it is going to spend – that means its financial leverage will only increase in time. For instance, the company recently outlined an ambitious CapEx program for 2017 for UAH 27.4 bln, a third of which will be fullfilled by attracting new debt. Such a CapEx program exceeds Ukrzaliznytsia LTM EBITDA (2H15-1H16) of UAH 18.4 bln. All this is in line with our neutral/cautious view on Ukrzaliznytsia’s Eurobonds.