Ukrainian Railways suffers UAH 7 bln loss in 1Q20, media report

Ukrainian Railways (RAILUA) generated UAH 7 bln in
losses in 1Q20, the liga.net news site reported on May 20, citing information
from the website of the Cabinet of Ministers. The company’s freight turnover
fell 4.8% yoy during the quarter. With such troubles, the company may face a
liquidity deficit of about UAH 16 bln in 2020, including the need for repayment
of UAH 11 bln in debt. Taking into account such data, the Infrastructure
Ministry suggested that the cabinet reduce its dividend appetite from Ukrainian
Railways to 30% of 2019 net income, epravda.com.ua news site reported.

Recall, the company generated UAH 2.99 bln of net profit in 2019.
Based on the Cabinet decree of Apr. 24, state-controlled companies should pay
50% of their 2019 net income in dividends, with the exception of Naftogaz
(95%), Privatbank (75%) and some power companies (30%).

Alexander Paraschiy: The key
driver of the 1Q20 losses of Ukrainian Railways is the devaluation of the
hryvnia by 15.6% vs. the U.S. dollar during the quarter. As 98% of the
company’s end-2019 debt (amounting to USD 1.38 bln in the equivalent) was
denominated in USD and EUR, we estimate the weakened hryvnia should have
resulted in about UAH 6 bln in foreign currency losses during the quarter. As
the national currency has strengthened 5.6% since the beginning of the second
quarter and is not likely to devalue much, such losses will likely be partially
reversed by end-June. Nevertheless, the company’s lost freight traffic due to
quarantine restrictions will affect its fundamentals. Therefore, the proposal
to reduce the dividend distribution of Ukrainian Railways looks logical, and we
expect the cabinet will approve it.

The next question is – whether the company will be
able to find adequate financing of its potential gap this year. So far, the
task looks manageable, providing the company’s EBITDA won’t fall by more than
36% in 2020 (which does not look like a tough task, we estimate). Thus far, we
remain optimistic about the company’s ability to smoothly service its debt
obligations this year, and we are keeping our neutral view on RAILUA bonds.