Rail Capital Markets plc, the issuer of eurobonds for the Ukrainian state railway operator "Ukrzaliznytsia" (UZ) amounting to $594.9 million maturing on July 9, 2026, and $300 million maturing on July 15, 2028, announced that it was unable to obtain the consent of eurobond holders at the meetings held on December 31 regarding UZ's proposal for a one-year moratorium on eurobond payments and changes to several other terms.
"The borrower (UZ) notified the issuer that any final decision regarding the upcoming interest payments due in January 2025 under the Loan Agreements will be made taking into account the likelihood of implementing an increase in freight tariffs (as described in the Consent Memorandum), as well as the further development of freight volumes and the impacts and risks associated with the ongoing military aggression," the stock exchange announcement noted on Tuesday.
On December 16, UZ announced its decision to capitalize approximately $160 million of accrued interest on the eurobonds and requested their holders to defer the upcoming interest payments for another 12 months (the second support period) with the possibility of capitalization to maintain liquidity in light of the challenging financial situation due to Russian military aggression.
"The group will use this period to work with its stakeholders (including the government of Ukraine) and partners (such as international financial institutions) to prepare a long-term proposal and refinancing solution for its eurobond investors, which will require a more stable operational environment that, hopefully, can be seen in 2025 (and before the end date of the second support period)," noted "Ukrzaliznytsia."
It was specified that for the 2026 eurobonds with an interest rate of 8.25%, interest amounting to $108.28 million will be capitalized, increasing the total volume of this issue to $703.18 million, while for the 2028 eurobonds with a rate of 7.875%, the amount will be $51.9 million, raising the issue to $351.9 million.
Subsequently, the international rating agency Standard & Poor’s downgraded UZ's rating to "CC" from "CCC+".
The nearest coupon payments for the 2026 eurobonds are due on January 9, while for the 2028 eurobonds, they are scheduled for January 15.
Assistance in the attempt to impose a one-year moratorium on payments for "Ukrzaliznytsia" was provided by Dragon Capital and J.P. Morgan Securities.
In justifying the proposal, the company emphasizes that Ukraine continues to face armed aggression from the Russian Federation, which targets vital civilian and industrial infrastructure, particularly intensifying strikes on the energy system, leading to further deterioration of the company's business, operational results, financial condition, and prospects, including forecasts regarding expected indicators in 2025 and beyond.
It was noted that in December 2024, the supervisory board of UZ approved proposals for a 37% indexation of regulated freight tariffs, which are expected to cover the most critical operational needs as well as minimal capital expenditures to maintain key assets in proper working condition, while without indexation, EBITDA in 2025 would be close to zero.
"Ukrzaliznytsia" expects its EBITDA to be around 1.0 billion UAH in the fourth quarter of 2024 after a decline to 3.3 billion UAH in the third quarter of 2024 from 6.6 billion UAH and 6.9 billion UAH in the first and second quarters, respectively. As a result, the company estimates that its net loss in 2024 will range from 1.5 billion UAH to 2.5 billion UAH, depending on exchange rates and related expenses, as well as the consequences of Russian attacks.
As of December 30, the quotes for the 2026 eurobonds of UZ on the Frankfurt Stock Exchange were 84.76% of par value compared to 85.74% prior to the moratorium proposal, while for the 2028 eurobonds, they were 73.81% versus 74.83%.