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Ukrzaliznytsia CEO advocates further rate hikes for 2017

Ukrzaliznytsia CEO advocates further rate hikes for 2017

21 September 2016

Wojciech Balczun, the CEO of Ukrainian state railway company Ukrzaliznytsia (UZ, RAILUA), said in an interview with Interfax-Ukraine published on Sept. 20 that another increase in freight transit rates may occur as early as 1Q17, following the 15% rate hike in May. The rate hike would help to stabilize UZ’s financial position, Balczun said, admitting that it would not even cover inflation if it’s approved.

 

Roman Topolyuk: A rate hike for freight transportation, UZ’s key source of revenue, will benefit the company. It will meet strong resistance from Ukraine’s industrial lobby, and its approval might get delayed throughout the year we anticipate. We see that the prospect of further hryvnia devaluation could be among the reasons to justify the increase, in hryvnia terms.

 

Therefore, despite these possibilities, UZ’s dollar earnings are likely to remain stable next year compared to 2016. The 2016 financial plan foresees EBITDA of UAH 27.5 bln (USD 1.1 bln), rising from UAH 13.6 bln in 2015.

 

Ukrzaliznytsia’s Eurobonds trade at a spread to sovereign of 243 bps compared to the historical average of 322 bps, while the YTM is 10.7%, the lowest since the notes were initially placed in 2013. Note also that Ukrzaliznytsia is now in technical (cross) default under its Eurobonds. We recommend reducing exposure to RAILUA.

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