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RA Fitch Withdraws Ukrzaliznytsia's Ratings; Rates Ukrainian Railway 'C'

March 23, 2016 | Cbonds

Fitch Ratings has withdrawn the State Administration of Railways Transport of Ukraine's (Ukrzaliznytsia) ratings including its Long-term foreign currency Issuer Default Rating (IDR) of 'C' and Long-term local currency IDR of 'RD' (Restricted Default).

This follows the reorganisation of Ukrzaliznytsia into Public Joint Stock Company Ukrainian Railway (Ukrainian Railway). Accordingly, Fitch will no longer provide ratings for Ukrzaliznytsia.

Simultaneously Fitch has assigned Ukrainian Railway a Long-term foreign currency IDR of 'C', and a Long-term local currency IDR of 'RD'.

A full list of rating actions is available at the end of this rating action commentary.


Ukrainian Railway is a legal successor of Ukrzaliznytsia, the country's six regional railway enterprises and other railway transport enterprises (collectively Ukrzaliznytsia Group), which were merged as a result of the reorganisation as part of Ukraine's railway transportation reform for 2010-2019. Following the reorganisation Fitch has withdrawn the ratings of Ukrzaliznytsia and assigned ratings to the new entity Ukrainian Railway, using the same credit-linked public-sector entity (PSE) approach as per Fitch's PSEs rating criteria.

Ukrainian Railway, a new 100% public state-owned joint stock company, commenced its operations on 1 December 2015. It takes over all financial, legal and operating responsibilities from Ukrzaliznytsia Group. This includes Ukrzaliznytsia's USD500m Eurobonds due 2018 structured via Shortline Plc loan participation notes (LPN), and other outstanding debt of Ukrzaliznytsia Group.

Fitch views Ukrainian Railway as a credit-linked PSE to its sponsor, Ukraine (CCC/C/CCC) and has judged "control" from and "strategic importance" for the Ukrainian government as "stronger" according to its PSE criteria notching guidelines. This reflects the company's strategic role in the national railways system and its strong legal links with the Ukrainian government, which has approval powers on all strategic decisions, including top management appointment, tariff setting, investment and debt planning.

Ukrainian Railway will remain a strategically important transportation company and will continue to manage the national railway infrastructure, and provide dispatching, passenger transportation (long-distance and suburban), and dominant freight services.

"Legal status" and "integration" with the sponsor have been assessed as "mid-range" as the company has lost its state administration status and now operates as 100% state-owned public joint stock company and there is no plan for its privatisation. The company has its own budget, which is separate from that of the state and its debt is not consolidated with state debt.

Ukrainian Railway has been drawn into the restructuring of Ukraine's foreign currency debt, through the forthcoming exchange of part of the company's foreign debt, its USD500m Eurobonds due 2018. This takes place despite lack of ongoing subsidies from the sponsor yet it highlights the interconnected credit quality between Ukrainian Railway and the sovereign. This sovereign drag on Ukrainian Railway's finances has therefore led to the foreign currency IDR being two notches below that of the sovereign, which emerged from default in May 2015.

The assignment of the foreign currency IDR at 'C' (default is imminent or inevitable), reflects the forthcoming exchange of the USD500m Eurobonds due 2018. In Fitch's view, the restructuring will lead to a material reduction in terms (including extension of maturity) compared with the original contractual terms of the entity's financial obligations. (See Fitch: Ukrzaliznytsia's Eurobond Restructuring Terms Meet Distressed Debt Exchange Criteria dated 11 December 2015).

The 'Restricted Default' on the local currency IDR reflects a failure to make principal payments under certain bilateral loan agreements with Ukrainian lenders and that the company is currently restructuring these domestic liabilities.

The Long-term foreign currency IDR would be downgraded to 'RD' upon completion of restructuring in respect of the USD500m Eurobonds due 2018 and subsequently re-rated to reflect the company's post-exchange credit profile.

Fitch will also review and re-rate the company's local currency IDR and National Long-term rating once the company has completed its domestic debt restructuring and information is available on its post-restructuring credit profile.

The company is likely to remain credit-linked to the Ukrainian sovereign.

Company: Ukrzaliznitsya

Full company nameThe State Administration of the Ukrainian railway Ukrzaliznitsya
Country of riskUkraine
Country of registrationUkraine


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