Ukrainian Railway to boost freight rates 14% in April

Ukrainian Railway (RAILUA) will boost its freight
rates by 14.2% as of April after the State Regulatory Service approved a
Cabinet decree foreseeing the adjustment, CEO Yevhen Kravtsov wrote on his
Facebook page on March 22.

The company expects further increases in freight rates
of 2.5% as of May, 5.0% as of August and 7.5% as of November (compared to
April’s level), according to its 2019 financial plan approved by the Cabinet in
early March. Ukrainian Railway’s revenue from freight transportation services
is planned to increase 24.3% yoy to UAH 83.99 bln in 2019 amid a 0.8% yoy
increase in freight turnover to 230.3 bln t*km.

The plan also foresees a 23.1% yoy rise in the
company’s total revenue to UAH 102.71 bln and a 59.4% yoy surge in EBITDA to
UAH 25.05 bln. It also assumes a 8.6% yoy increase in CapEx to UAH 18.02 bln.
In the approved financial plan, the company’s revenue, EBITDA and CapEx were
lower than in the initial 2019 plan published in late 2018 by 6%, 10% and 32%,
respectively.

Ukrainian Railway is also going to boost its net debt
by UAH 3.84 bln in 2019 to UAH 40.01 bln, and finish the year with a
net-debt-to-EBITDA ratio of 1.6x (down from 2.3x in 2018).

Alexander Paraschiy: This
approval is definitely positive for Ukrainian Railway, which generates all its
operating profit from its cargo segment. With such rate adjustments, the
company’s plan to increase profitability becomes realistic, which eases
attracting new debt for the company. Recall, Ukrainian Railway had a plan to
attract a new Eurobond this year to refinance the payment of a USD 300 mln
amortization of an existing Eurobond in March-September 2019.

The company’s updated (and downgraded) CapEx plan for
2019 looks much more realistic now. In 2017 and 2018, its over-ambitious
investment plans were implemented by two-thirds only.

Keeping in mind the risk that freight rate adjustment
for May-November may not be approved, we maintain our neutral view on RAILUA
Eurobonds.