Fitch upgrades Ukrzaliznytsia bond rating to sovereign level

Fitch Ratings has upgraded the long- and short-term foreign currency issuer default ratings (IDR) of Ukrainian railway monopoly Ukrzaliznytsia (UZ, RAILUA) to “CCC”, the agency reported on March 24. It also assigned a “CCC” rating to the newly listed Eurobond of Ukrzaliznytsia. The holding’s foreign currency rating “is equalized with that of the sovereign,” Fitch reported. “The agency continues to view Ukrainian Railway as a credit-linked public-sector entity”.

Two days ago, before information on the completion of the UZ Eurobond restructuring surfaced, Fitch confirmed the long-term foreign currency IDR of the holding at “C” and its long-term local currency IDR at “RD”.

Alexander Paraschiy: Despite Ukrzaliznytsia being a fully state-controlled entity, it does not benefit from state support as much as Oschadbank, Ukreximbank and Naftogaz of Ukraine do. The latter three companies usually benefit from government contributions into their equity should they need financial support. That was not the case for Ukrzaliznytsia, which defaulted in 2009 on a USD 110 loan and had to negotiate on a restructuring by itself. Thus, we disagree with Fitch’s position that the UZ bond is quasi-sovereign, while we agree that the holding’s current financial stance deserves a rating comparable to the Ukrainian government’s. We remain neutral on the short-term prospects of RAILUA Eurobonds and bearish on its long-term prospects.