Ukrainian Railway signs memoranda with Alstom, CRRC

Ukrainian Railway (RAILUA) signed with French Alstom
and Chinese CRRC memoranda for cooperation aimed at supplying Ukraine with
electric locomotives, the company reported on Sept. 19, citing its acting CEO
Yevhen Kravtsov. He clarified that the company is going to select a strategic
partner for electric locomotive supplies by the end of 2018, indicating that
the company’s total need for new electric locomotives is 500 units by 2029.
Among the key criteria for selecting a partner is a high share of Ukraine-based
added value in producing a locomotive, the company stated. It currently has a
fleet of 800 electric locomotives whose average age is 39 years.

Recall, in February 2018, Ukrainian Railway signed with General Electric (GE US) a contract
to purchase 30 diesel locomotives in one year, as well as a broad agreement for
purchase of up to 255 units in 15 years.

Alexander Paraschiy: Ukrainian
Railway is going to invest almost UAH 50 bln into new locomotives and railcars,
according to the company’s strategic plan till 2021. So it’s positive that the
company is moving forward with that task. If the new electric locomotive deal
will imply high localization of its manufacturing, it will be also positive for
Ukrainian industrial output. 

In any case, such ambitious projects, if fulfilled,
will significantly boost Ukrainian Railway’s financial leverage from its 1.8x net
debt/EBITDA ratio as of end-1H18. For that reason, we maintain our neutral view
on RAILUA bonds.