Luhanskteplovoz equipment being moved to Russia, Ukraine says

The production equipment of at least six machine-building enterprises located on the occupied part of the Luhansk region of Ukraine is being dismantled and moved to Russia, the Ukrinform news agency reported on Jan. 18, citing Ukrainian military intelligence. The transfer includes the equipment of Ukraine’s leading locomotive producer, Luhanskteplovoz (LTPL UK). According to the intelligence data, Kremlin is being forced to limit its financing of the enterprises in occupied Donbas due to the worsened economic situation in Russia. The workforce at Luhanskteplovoz was 2,800 as of the beginning of 2015, the source reported, and there is a plan to decrease it to 350. In 2014, Luhanskteplovoz employed about 7,000 workers.

Luhanskteplovoz, part of Russian Transmash-Holding, was a leading producer of diesel locomotives in the former U.S.S.R. and one of the blue chips of the Ukrainian stock market. It produced 263 locomotives in 2013 (including 259 for Russian Railways), and 282 units in 2014 (all for Russia). The enterprise was chosen as the main contractor for a large order of electric locomotives of the Ukrainian railway operator in 2013, but this order failed. In June 2015, shareholders decided to register the company on the non-occupied part of Ukraine. Luhanskteplovoz initially planned to produce 300 locomotives in 2015, but this plan was later downgraded to 93 units. No actual data for 2015 output is available at the moment.

Alexander Paraschiy: For the parent Transmash-Holding, it would be logical to reallocate production of locomotives from Luhansk to its Russia-based enterprises, given the huge risks and logistical issues related to operations in war-torn Luhansk. The only reason for the holding to keep an enterprise registered in Ukraine is a big potential order from Ukrzaliznytsia (about 300 electric locomotives, according to the initial plan of Ukraine’s railway operator). But this order does not look viable due to geopolitical issues and lack of financing at the Ukrainian railway monopoly. At this stage, we have no information from Luhanskteplovoz or Trasnmash-Holding that supports this intelligence report, but in any case we see no value in LTPL stock.