S&P removes Ukrainian Railway rating from CreditWatch

S&P Global Ratings affirmed its CCC long-term
issuer credit rating of Ukrainian Railways (RAILUA) and removed it from
CreditWatch with negative implications, the agency reported on June 16. It also
awarded a positive outlook for the company’s rating. The action was triggered
by Ukrainian Railways’ completion of the rescheduling of a Sberbank loan for
USD 116 mln that was due in late May. Although the agency considered the
restructuring as distressed, S&P did not see the deal “as tantamount to
default.” S&P highlighted that the ultimate maturity of Sberbank loans was
not changed after the latest restructuring.

The agency also assessed the company’s liquidity as
“less than adequate,” though it concluded that Ukrainian Railways will remain
fully committed to the timely repayment of the last USD 50 mln installment on
its 2016 Eurobond in September. S&P also sees a potential for the company
to secure new external funding this year. It also stated that Ukrainian
Railways expects UAH 4 bln financing from the state budget this year.

Recall, S&P downgraded Ukrainian
Railways’ rating to CCC from B- and placed it on
CreditWatch with negative implications on April 21, due to risk of USD 116 mln
payments to Sberbank on May 30. It also promised to further lower the rating if
the company’s actions were viewed as “a distressed exchange or default.” On May
27, Ukrainian Railways reported it
had restructured the loan with “the postponement of most of the May debt
payments till the end of 2021 and a gradual reduction of the interest rate.”

Alexander Paraschiy: It is
positive that S&P decided not to lower the company’s rating further, even
though the restructuring deal might look like a distressed exchange. This gives
the company an opportunity to raise new debts and secure funds for CapEx and
refinancing. Our view on RAILUA bonds remains neutral.