Ukrzaliznytsia ready to discuss smaller freight rate hike, its head says

Ukraine’s railway monopoly Ukrzaliznytsia (RAILUA) is
currently involved in an “active dialogue” with its business clients to agree
upon the amount of the freight railway hike, acting CEO Yevhen Kravtsov said an
interview with Interfax-Ukraine published on Sept. 27. Ukrzaliznytsia is ready
to find a consensus, having submitted a comprehensive argument for a 22.5%
freight rate hike that has yet to be effectively countered, Kravtsov said. In
the future, Kravtsov expects to agree on some automatized indexation of freight
rates that is linked to Ukraine’s producer price index.

Recall, Ukrzaliznytsia’s 2017 business plan, approved
by Ukraine’s Cabinet on Sept. 13, assumed a 22.5% freight rate hike as
of October, which has yet to be approved by the
Cabinet. Last week, the State Regulatory Service declined to approve the rate hikeand its head called for talks between UZ and its clients to agree upon a rate
increase.

Alexander Paraschiy: Just two
days remain until October 1, when the 22.5% rate hike should have taken effect,
as is assumed by UZ’s business plan. And the likelihood that this will happen
looks less than 50%. We see a significant risk for both a delayed rate hike,
and its reduction, which would undermine the fulfilment of the company’s
business plan.

In our view, that won’t hurt the company’s
financial position and liquidity much, as the company had been planning to
direct the additional revenue from the rate hike for capital investments.
However, such a delay (and smaller investment) naturally will have negative
mid-term consequences  for the company. All in all, we retain our neutral
outlook on RAILUA Eurobonds.