Ukrainian Railway triples FCF in 2015, has little time to restructure loans
5 July 2016
Net revenue at Ukrainian Railway (RAILUA, Ukrzaliznytsia) rose 22% yoy to UAH 60.13 bln in 2015, according to its consolidated annual report released last week. Revenue in its key segment, cargo transportation, increased 25% yoy to UAH 49.10 bln. Its gross profit (“segment result”) improved 67% yoy to UAH 18.31 bln, the result of its cargo segment increasing 46% yoy to UAH 23.90 bln and losses of other segments remained broadly flat yoy at UAH -5.59 bln.
The holding’s EBITDA improved 41% yoy to UAH 13.58 bln in 2015, based on Concorde Capital estimates. Nevertheless, its net loss grew 9% yoy to UAH 16.78 bln, mostly due to UAH 13.91 bln in foreign exchange losses (-2% yoy) and UAH 5.13 bln in finance costs (+38% yoy). Its operating cash flow before working capital changes increased 91% yoy to UAH 17.98 bln, and its free cash flow jumped 3.2x yoy to UAH 7.29 bln.
The company’s total debt increased 35% yoy to UAH 42.0 bln as of end-2015, with the growth solely caused by devaluation of the local currency. Its net debt increased 28% yoy to UAH 37.1 bln. As of the year end, the company was in default or cross default on UAH 5.8 bln of its loans.
Although the company was able to restructure its USD 500 mln Eurobonds in early 2016, thus far it failed to reach a mutually acceptable restructuring agreement with its banking lenders, according to the company’s independent auditor report. It has to complete the restructuring by mid-August, otherwise it will be in cross default on its Eurobonds.
Alexander Paraschiy: The good news is that the company’s ratio of net debt-to-free cash flow decreased to 5x in 2015 from 13x the year before. That fosters hope that the company will be able to meet most of its debt obligations by 2021, unless its ability to generate cash flow deteriorates. We have to note that this level of free cash flow was reached due to unsustainably low CapEx (UAH 3.5 bln, which is below the company’s D&A of UAH 7.0 bln). At the same time, UZ has a chance to keep its free cash flow at current levels, providing the ambitious plan of its new CEO to save UAH 7 bln p.a. in his first year (as reported by Ukraine’s PM a month ago) is fulfilled.
The key risk for Ukrzaliznytsia now is in its debt restructuring process. After it secured its Eurobond restructuring on February 19, it got a six-month grace period from bondholders to settle other debt issues. If such issues are not agreed upon in the coming seven weeks, the bondholders will gain the right to accelerate Eurobond repayment and the company may need to start a new round of debt restructuring negotiations.
