Fitch affirms Ukraine Railways B rating, removes from RWN

Fitch Ratings reported on July 22 that it affirmed
long-term issuer default rating of Ukrainian Railways (RAILUA) at B and removed
it from Rating Watch Negative (RWN). It applied a Stable outlook for the
rating. The removal from RWN is due to the company’s improved liquidity
position following the placement of the USD 300 mln Eurobond
in early July. The proceeds from the new bond, as well as available credit
lines, will allow the company “to offset projected debt servicing needs in 2H21
and 2022,” Fitch concludes. Based on this, the agency upgraded Ukrainian Railways’ 
Standalone Credit Profile to b- from ccc, which, with unchanged view on the
company’s Government Related Entities Criteria, allowed it to equalize the
company’s credit rating with Ukraine’s sovereign.

According to Fitch, the company has already used bond
proceeds to repay USD 131.2 mln of debt to Sberbank (recall, the company had re-scheduled the repayment of USD 116 mln
of Sebrbank loans due on May 30. The total amount due to Sberbank in 2021 is
about USD 153 mln, based on the company’s financial plan). The rest will be
used to repay the remaining USD 50 mln in 2021 Eurobond in September and other
loan facilities.

Recall, following the rescheduling of Ukrainian
Railways’ debt to Sberbank, S&P Global Ratings removed
the company’s rating from CreditWatch with negative implications in mid-June,
affirming its rating at CCC.

Alexander Paraschiy: Fitch’s move is an expected event. With the recent placement, the
company’s liquidity profile has been significantly improved, and following the
recovery of Ukraine’s economy, its fundamentals will be much better in 2H21.
This allows us to expect a rating upgrade from S&P. An additional improvement
of fundamentals could come from the possible increase of freight rates, as was pre-announced by the infrastructure
ministry in early July, as well
as possible budget outlays for up to UAH 51 bln in the coming three years to
finance the company’s upgrade of passenger railcars and related infrastructure.
At the current levels, we see RAILUA bonds maturing in 2024 and 2026 as an
attractive investment.