S&P upgrades Ukrainian Railways rating to CCC+

29 July 2021

S&P Global Ratings raised the long-term issuer credit rating of Ukrainian Railways (RAILUA) by one notch to CCC+ with a Stable outlook, the agency reported on July 29. According to S&P, the company has alleviated liquidity pressure by raising USD 300 mln from the recent Eurobond issue, which allows it to repay some of the short-term debt, including USD 131 mln loans from Sberbank. At this time, the contractual debt payments for the rest of 2021 have reduced to USD 58 mln (from USD 160 mln), and for the year 2022 to USD 35 mln from USD 131 mln, S&P calculated.


Among the key risks for the company’s liquidity, S&P sees litigation by VR Global Partners which demands repayment of USD 153 mln debt (which the creditor bought from Prominvestbank in 2019). Recall, in May, a Ukrainian court suspended the enforcement of debt claims from VR Global Partners. If the litigation will lead to the need of Ukrainian Railways to repay the debt, this could lead to a worsening of the company’s rating, S&P stated. At the same time, “material state support” or “stronger cash flows” resulted from improving operating conditions may lead to an upgrade of the company’s rating.


Recall, last week, Fitch Ratings confirmed the company’s B rating and removed it from Rating Watch Negative.


Alexander Paraschiy:  The move is fully in line with our expectations. If there is no new wave of COVID in Ukraine and economic growth goes as planned, and if the government confirms its plans to support new projects of Ukrainian Railways with budget money, we expect further improvement of the company’s credit rating from S&P. Claims by VR Global Partners add some risk to Ukrainian Railways’ mid-term liquidity, but we expect the company would be able to restructure this debt in a way that does not affect its cash flow much. That said, RAILUA bonds look like the most attractive in Ukraine’s quasi-sovereign universe.

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