Ukrainian Railways capitalizes $160 mln interest on Eurobonds, proposes moratorium on paying new ones for another year
MOSCOW. Dec 17 (Interfax) - Ukrainian Railways, a Ukrainian state-owned railway operator, has decided to capitalize around $160 million in accumulated interest on Eurobonds and asks their holders to postpone payment of upcoming interest for another 12 months (second support period) in the same way with the option of capitalization to preserve liquidity in the challenging financial situation due to the crisis, Ukrainian media reported.
"The Group will use this period to work with its stakeholders (including the Ukrainian government) and partners (such as international financial institutions) to draw up a long-term refinancing proposal and solution for its Eurobond investors, which will require a more established operating environment that could hopefully be seen in 2025 (and before the end date of the second support period)," Ukrainian Railways said.
The interest on the $594.9-million Eurobonds maturing on July 9, 2026 with a 8.25% interest rate is capitalized at $108.28 million, increasing this issue to $703.18 million, while that on the $300-million Eurobonds maturing on July 15, 2028 with a 7.875% interest rate is capitalized at $51.9 million, increasing the issue to $351.9 million, it said.
The deferral of each bond begins on the next scheduled coupon date in January 2025, while the deferred amounts will continue to accrue at the same coupon interest rate and the maturity of each bond remains unchanged, it said. At the same time, Ukrainian Railways retains the right to redeem the deferred amounts at any time during the second support period.
The company plans to limit cash outflows during these 12 months, maintain liquidity by only incurring new debt that will exceed the amortization of principal, and retain the option to service its rental agreements and short-term working capital loans, which are an important part of the company's day-to-day operations.
The company is also asking bondholders to allow it to raise new long-term funding with an average maturity beyond July 2028, authorize raising up to 99 million euros under a concessional, government-guaranteed 2023 European Bank for Reconstruction and Development (EBRD) loan, and specify the advance payment and subsequent cancellation arrangements in the documentation to allow Ukrainian Railways to better manage its debt.
Ukrainian Railways is expected to draw around 20 million euros in concessional financing from the EBRD against Ukraine's guarantees.
"The Group says that the government, having undertaken a comprehensive restructuring of its own Eurobonds in 2024, may find it difficult to justify budgetary or other assistance to the Group if it continues to service its debt in accordance with the originally envisaged schedule," it also said.
The announcement said that applications from bondholders to agree to such a request would be accepted up to and including December 27, and the company was prepared to pay the participants a 0.5% fee of the face amount. Meetings to approve the company's proposals are scheduled for December 31, the quorum is two-thirds of the participants, of which 75% have to vote in favor.
Dragon Capital and J.P.Morgan Securities are assisting Ukrainian Railways in the transaction, and a conference call with Eurobond holders is scheduled for December 18, it also said.
Ukrainian Railways expects its EBITDA to be around UAH 1.0 billion in the fourth quarter of 2024 after dropping to UAH 3.3 billion in the third quarter of 2024 from UAH 6.6 billion and UAH 6.9 billion in the first and second quarters. As a result, the company currently estimates that its net loss in 2024 will be between UAH 1.5 billion and UAH 2.5 billion depending on exchange rates and related costs.
This December, the Ukrainian Railways Supervisory Board approved proposals for a 37% indexation of regulated freight transportation tariffs, which is expected to cover the most important operational needs as well as minimum capital expenditures to keep key assets in proper working condition, while without indexation EBITDA will be close to zero in 2025.
"In the current environment, given the impact of railway tariffs on other sectors of the Ukrainian economy, the freight tariff increase (if implemented) is expected to cover only the most essential minimum costs to ensure the Group's operational stability. In particular, even in case of its implementation, such tariff increase is not expected to provide sufficient cash flows," it said.
As reported, the Fitch Ratings agency upgraded Ukrainian Railways' long-term foreign and local currency Issuer Default Ratings (IDRs) and its Eurobonds by $894.9 million to 'CC' from 'C' in late August.
The repayment of $594.9 million in July 2026 (almost 50% of Ukrainian Railways' debt) and $300 million in July 2028 (24%) poses a high refinancing risk for the company due to very limited access to financing facilities, the agency said. Fitch did not see at the time how the company intends to fund the 2026 payment, and said that Ukrainian Railways will have to resume deferred coupon payments in January 2025 following the January 2023 deferral rights received from bondholders.
