Court rules Ukrainian Railways to be successor to former division debts

The Grand Chamber of the Supreme Court of Ukraine has
ruled to recognize Ukrainian Railways (RAILUA) as the legal successor to the
debt obligations of State Enterprise Donetska Railway, its former Donbas
division, the company reported on June 25. The company also warned the court
ruling threatens Ukraine’s security and the stability of its railway industry
operations.

In particular, Ukrainian Railways claims that the
court’s ruling will lead to the company being obligated to repay Donetska
Railway’s liabilities, which exceed UAH 6.5 bln. At the same time, the company
has no access to the assets of Donetska Railway, most of which are located on
the occupied territories of the Donetsk and Luhansk regions (known as Donbas).
The company warned that such additional obligations jeopardize its financial
situation and liquidity, which are otherwise weak due to the COVID-19 crisis.
Therefore, the company called upon all government bodies to take measures to
protect the interests of the company and the state, among others, by initiating
legislative changes that will allow for settling this issue.

Recall, Joint Stock Company Ukrainian Railways was
created in October 2015 to consolidate the assets and operations of six
regional railway companies, including a small part of Donetska Railway which
was located outside the occupied territories. Since then, Ukrainian legislation
was amended several times to protect Ukrainian Railways from the possible
enforcement of paying the liabilities of Donetska Railway up until it regains
full control over all the Donetska assets.

Alexander Paraschiy: The company
offered no details of the court’s ruling. Theoretically, it’s possible that the
Supreme Court made a ruling that could indeed imply an increase of Ukrainian
Railways’ obligations, and even lead to a cross-default on other company debt,
including its Eurobonds (recall, some of the debts of Donetska Railway, in the
amount of USD 111 mln and UAH 958 mln, were carved out from the cross-default
clause under Ukrainian Railway’s Eurobonds, but there could be other debt
claims too). Otherwise, we view Ukrainian Railways’ warnings to be excessive.

Namely, the only available recent ruling of the
Grand Chamber of Supreme Court related to Ukrainian Railways is the ruling on
the claim of power generation company Donbasenergo, which is seeking repayment
of UAH 70.3 mln in debt of Donetska Railway from Ukrainian Railways. Namely,
the Grand Chamber of Supreme Court overturned on June 19 the rulings of the
lower courts (which favored Ukrainian Railways) on this case and assigned a new
hearing to a first-tier court. From this ruling, it’s hard to conclude that the
company was recognized as a successor of Donetska Railway’s debts.