S&P downgrades Ukrainian Railways to CCC-, outlook negative

MOSCOW. Aug 11 (Interfax) - S&P Global Ratings has downgraded the national and local currency issuer ratings of Ukrainian Railways (UR) to "CCC-" from "CCC," and placed them on CreditWatch with a negative outlook.

The agency said on its website that it sees Ukraine's proposal to postpone payments on all foreign debt by 24 months as a sign of a significant deterioration in its financial ability to continue to provide constant support for UR.

The negative outlook points to the significant risk that UR might declare a default if additional financial support is not received from the government, S&P said.

The agency said it believes that without additional intervention by the government or a significant reduction in UR's operating expenses, the company will probably have to restructure its payment schedule or declare a default on its debt within the next six months, since existing liquidity will be depleted to maintain operations.

Furthermore, the agency said the proposed restructuring of foreign debt at the sovereign level increases the risk of restructuring of the foreign debts of companies linked to the government, such as UR.

The agency also said it is not yet clear how the company's liquidity will be affected by a recent hike in freight rates and the opening of Ukraine's seaports.

S&P said that the 70% increase in UR's freight rates in July is a significant improvement, but this could also hit freight volumes, since not all customers are prepared to pay such high rates. Also in July, Ukraine and Russia agreed to de-mine three ports in Odesa region so that Ukraine can export grain.

The agency said it believes both events could increase UR's ability to generate cash flow and partially reduce its dependence on further financial support from the government, but when this will happen remains uncertain.

S&P downgraded UR's rating to "CCC" in early June. Fitch Ratings downgraded UR's foreign currency rating to "C" from "CCC" and local currency rating to "CCC-" from "CCC" at the beginning of August.