S&P downgrades Ukrzaliznytsia rating to sovereign

The Standard & Poor’s rating agency lowered the credit rating of the Eurobonds of state railway monopoly Ukrzaliznytsia (UZ, RAILUA) to “CCC-” from “CCC,” the agency reported on Dec. 30. The downgrade is a result of the respective downgrade of Ukraine’s sovereign rating announced on Dec. 19. The reasons why UZ does not deserve a higher-than-sovereign rating are its “weak” liquidity and “high” (but not “extremely high”) likelihood of sovereign support, the agency said.

Alexander Paraschiy: The move was fully expected after S&P lowered the ratings of Ukraine, MHP and Ukrlandfarming. The only Ukraine-related company in S&P’s coverage that has yet to be downgraded is Ferrexpo (FXPOLN) – its rating, thus far, is “CCC+”, or two notches higher than sovereign. There is no chance that Ferrexpo’s rating will be unchanged, so the core question is whether it will be lowered down to Ukraine’s or will remain one notch better. Given the negative price trends on the iron ore market, which might negatively impact Ferrexpo’s financial leverage multipliers in 2015, we do not rule out a two-notch downgrade for Ferrexpo.