S&P upgrades Ukrzaliznytsia rating from 'CC' to 'CCC' due to Jan coupon payment on eurobonds
The International rating agency S&P Global Ratings upgraded the long-term credit rating of JSC Ukrzaliznytsia (Ukrainian Railways) and its eurobonds from "CC" to "CCC" after the company paid coupons on eurobonds maturing in 2026 and 2028 on January 9 and January 15.
"In January 2025, Ukrainian Railways JSC (UR) paid the coupon on the eurobonds due in 2026 and 2028, which prevented the company from defaulting on the bonds... As a result, we raised to 'CCC-' from 'CC' our long-term issuer credit rating on UR; the outlook negative," S&P reported.
According to the agency, UR's immediate default risk has eased after the coupon payments, but not gone away, given significant pressure on the company's liquidity emanating from the war in Ukraine and high uncertainties regarding the Ukrainian government's financial capacity to provide further support to UR.
The negative outlook reflects high risks to UR's debt service payments, given its weak liquidity position and high uncertainty regarding effects of the war on UR's operations.
UR's decision to make coupon payments in January was made in connection with the confidence that the authorities would approve the tariff increase, S&P believes.
"While UR's liquidity has materially deteriorated, we understand from management that now there is a higher probability of tariffs increasing in 2025, which could somewhat improve UR's ability to generate cash flows, although no final decision on the tariff increase has been reached yet," S&P reported.
"We believe the material tariffs increase could somewhat strengthen UR's ability to generate cash flows. However, this could also hit its already weak cargo volumes as not all clients would be willing to pay high tariffs," S&P reported.
"We believe UR is likely to have to restructure its payment schedule or default on its debt payments within the next six to 12 months because, without additional government intervention or significant cuts to operating expenditure, existing liquidity will be depleted to maintain operations," S&P reported.
The agency recalled that in 2025, UR's coupon payments will be low - about $45 million, and the company's largest payment is only due in July 2026 - $703 million.
S&P's report notes that the agency may lower UR's rating if it believes that the company is unable to make debt payments in accordance with the repayment schedule over the next 6-12 months.