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    9.2.3​ Transport corporate news
       Ukrainian Railways reported on December 4 that it is expecting UAH17.6bn of revenue from freight transportation services in 4Q20, ​which is a record-high quarterly result. The company also reported that its freight transportation revenue was UAH16.6bn in 1Q20, UAH14.6bn in 2Q20 and UAH16.3bn in 3Q20.
Freight transportation is the company’s only profit-generating segment, which usually covers all the losses of other segments. It also accounts for the vast majority of its revenue, or over 80%. Its 1H20 revenue from freight transportation was UAH30.9bn, or 16% less y/y, according to Ukrainian Railways’ interim accounts.
The company’s guidance imply that in 2H20, it will be able to generate freight revenue of UAH33.9bn in 2H20, which will be a 10% decline y/y. Its annual freight revenue will be about UAH65bn, or 11% less y/y. Despite its announced record-high freight revenue in 4Q20, the company’s 2H EBITDA will likely suffer significantly on a y/y basis.
In particular, we estimate its annual 2020 EBITDA won’t exceed UAH10.5bn, while its net debt at the end of the year will likely be more than UAH34bn. That means its net debt / EBITDA ratio as of end-2020 will exceed its incurrence covenant on Eurobonds of 3.0x. Nevertheless, we remain neutral on RAILUA bonds.
Ukrzaliznytsia increased its freight traffic in December by 7.4% y/y,
transporting 26.7mn tons of cargo, reports the state railroad’s press service. By another measure, freight turnover was up 4.4% y/y, to 14.4bn tonnes. A key indicator of economic activity, UZ moves half of Ukraine’s cargo.
Ukrzaliznytsia plans to spend almost $1bn next year on repairing locomotives, cars, and track​ — almost three times the money spent this year. As posted on the state railroad’s site, financing would be: 55% from UZ’s funds; 31% from bond sales; and 14% from the state budget. According to Vladimir Zhmak, UZ’s new CEO, the railroad will probably end this year with a $500mn loss, largely due to lost passenger ticket sales. Last year, the railroad recorded a profit of $110mn.
VR Capital, the London-based emerging markets hedge fund, is pursuing litigation against Ukrzaliznytsia over a $300mn package of defaulted loans​ that VR acquired two years ago at auction from Russian lender Prominvestbank, reports Reorg Research, a London financial intelligence provider. The loans had an initial principal of $153mn, but since they matured in 2015 and 2016, the accumulated fees, penalties and interest have risen to an almost equal amount. Reporter Jack Laurenson wrote that UZ has entered into talks with VR and recognizes that VR now holds the debt.
Betting on the revival of river cargo, the KPS Group is drawing up plans for a 5-year, $75mn project to build a multimodal port capable of doubling Kyiv’s river cargo volumes by 2027.​ With rail and highway access, the site would be on 16 hectares of industrial land in Telychka, immediately south of Pivdennyi Bridge, Kyiv’s southernmost bridge. KPS Group has a lease on the land, is drawing up feasibility studies and is talking with potential foreign
 67​ UKRAINE Country Report​ January 2021 ​ ​

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