Think Railways

Standard & Poor's Ratings Services has lowered its long-term foreign and local currency corporate credit ratings on Ukrainian railway company The State Administration of Railways Transport of Ukraine (Ukrainian Railways) to 'CC' from 'CCC-'. The outlook is negative.

S&P  also lowered the issue ratings on the senior secured loan participation notes due 2018 and issued by financing vehicle Shortline PLC to 'CC' from 'CCC-'.

The rating action reflects the Ukrainian government's announcement that it will restructure its foreign currency commercial debt, including Ukrainian Railways' loan participation notes, worth US$500 million.

S&P assesses Ukrainian Railways' business risk profile as "weak" incorporates our view of "very high" country risk in Ukraine. In addition, it reflects Ukrainian Railways' significant capital-expenditure (capex) requirements to upgrade and renew its infrastructure and fleet. Recent tariff increases should help the company to partly mitigate falling cargo and passenger traffic resulting from the deteriorating economic environment. Still, these increases will not be enough to cover the full restoration of
services on the damaged Donetsk railway and foregone revenues due to suspended services on parts of this railway. However, we acknowledge Ukrainian Railways' substantial market share in domestic freight--about 70%--and its monopoly status in domestic passenger rail services and management of the national rail infrastructure.

"The negative outlook on Ukrainian Railways reflects the likelihood that we would lower our long-term ratings on the company to 'SD' (selective default) and lower the issue rating on its US$500 million loan participation notes to 'D' when the restructuring is completed", S&P announces.