Baku, Azerbaijan, Sept. 23
By Elena Kosolapova – Trend:
S&P Global Ratings lowered its long-term corporate rating on Georgia's national railway operator, JSC Georgian Railway (GR), to 'B+' from 'BB-'. The outlook is stable.
S&P affirmed the short-term rating on GR at 'B'.
At the same time, S&P lowered rating on GR's senior unsecured bonds to 'B+' from 'BB-'.
The rating action primarily reflects S&P’s assessment that the financial leverage at Georgian Railways has increased as a result of the decline in freight volumes in the first half of 2016, and will recover to previous levels in the next 12-24 months.
S&P estimates that in the first eight months of 2016, GR has lost up to 47 percent of oil product turnovers, one of its most profitable cargo types.
“There was also a decline of about 16 percent in dry cargo volumes, with some items falling by more than 30 percent,” the message said. “The causes vary between cargo types and include weaker economic environments in neighboring economies and repair and maintenance work in the oil and gas processing plants that supply liquid products.”
S&P base case assumes revenues to decline by 23-27 percent in 2016 with a subsequent recovery of 10-15 percent in 2017-2018; S&P Global Ratings-adjusted EBITDA margin to fall to 45-50 percent in 2016 and stay in the 45-50 percent area over the next two-to-three years; dividends distributed in line with the company’s policy.
The stable outlook on GR reflects S&P’s expectation that the company should be able to stabilize its operating performance in the remaining months of 2016 and begin to gradually improve its financial measures.
S&P expects that the company should be able to maintain its margins within the 40-50 percent range and its FFO-to-debt measures will be above 12 percent.
S&P could lower ratings on GR if the company were unable to stabilize its performance and maintain EBITDA margins above 40 percent or if its FFO-to-debt ratio were to stay below 12 percent for a sustained period.
S&P could also take a negative rating action if company's cash balances deplete, materially weakening its liquidity position.
S&P could raise the rating on GR if the company were to demonstrate meaningful improvement in its operating performance and profitability, leading its FFO-to-debt ratio to increase above 20 percent and debt-to-EBITDA ratio to fall below 4x.