Fitch affirms Russian Railways at BBB, Stable.

By bne IntelliNews February 14, 2012
Fitch Ratings affirmed the foreign currency long-term Issuers Default Rating (IDR) and priority unsecured rating of state-owned railways monopoly Russian Railways (RZD) at BBB, outlook Stable. RZD's ratings are on the same level as Russian sovereign ratings (BBB/Stable) due to 100% state ownership and strategic role of the company, while reflecting strong ties with the state including yearly tariffs, capital investment and subsidies being approved by the government. At the same time Fitch believes that own business and financial indicators of the company comply with the BBB rating, it being held back, however, by short-term nature of tariff-setting, market risk on commodity cargo (coal, oil and iron ore), low geographic diversification and dependency on state financing in terms of subsidies and capital injections. Agency expects single-digit revenues growth in mid-term perspective, EBITDA of about 20%-25% and negative cash flow due to substantial capital investment program of about RUB 1.3tn in 2012-2014. RZD increased cargo loading by 3.6% y/y to 1.4bn tons in 2011. To compare, in H1/11 cargo loading was up by 4% y/y to 607.7mn tons, while in 2010 RZD's cargo turnover went up by 8.8% y/y to 1.21bn tons. In 2011 RZD's domestic cargo turnover went up by 2% to 851mn tons, while international cargo turnover increased by 6% to 544mn tons. RZD also announced that its investment program for 2012 is going to amount to RUB 428.4bn (USD 13.7bn). Previously, RZD's investment program for 2012-2014 was announced at RUB 1.1tn, out of which the investment program for 2012 alone was planned at RUB 411.6bn. At the same time the development plan of the company previously included average borrowings over the next three years at RUB 100bn, as the sales of shares in subsidiaries and reserves of RZD are not going to fully finance the investment program. RZD posted RAS net profit of RUB 48.5bn in Jan-June 2011. This made a 17% y/y decline. Revenues in H1/11 went up by 10.8% y/y to RUB 644.7bn.

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