Baku, Azerbaijan, September 26
By Tamilla Mammadova – Trend:
Georgian Railway's operating and financial performance remains weak, resulting in funds from operations (FFO) to debt of about 5 percent despite some recovery in first half of 2019, Trend reports via the S&P Global Ratings.
"It's unlikely the company will generate sufficient cash from internal sources to repay its $500 million bond maturity in 2022, but we believe GR has a very high likelihood of extraordinary government support", said the report.
The agency has affirmed the Georgian Railways' "B" rating.
According to the S&P Global Ratings, possible positive momentum for Georgian Railways stems from positive outlook on Georgia (BB-/Positive/B), subject to no further deterioration in the company's stand-alone performance, with FFO to debt of above 5 percent, a prudent financial policy, and solid liquidity buffers.
"GR's business remains fundamentally exposed to significant volatility in transportation volumes outside the company's control, since it is mainly a transit corridor competing with other routes," said the report.
The agency noted that the lari depreciation is beneficial to GR because a large share of its revenue (from transit operations) is dollar-denominated, while its costs are in lari.
"We forecast that revenues will rise by up to 9 percent in 2019 and about 7 percent in 2020 due to growth in dry cargo and containers, compared with a decline of 2.3 in 2018", said the agency.
"It is expected that GR will stick to prudent liquidity management policies and will be able to maintain sufficient cash balances to ensure adequate liquidity in the absence of large maturity payments," the report said.
"As of June 30, 2019, GR reported 246 million lari of cash on the balance sheet. This significantly reduces the risk of liquidity deterioration in the next 12-18 months and supports the company's current rating of 'B+'. Without ongoing and extraordinary state support, GR would face difficulties in servicing its debt because of high leverage," said the agency.
"In our view, GR continues to benefit from a very high likelihood of extraordinary government support, considering the company is the largest employer in the country and its key role in implementing Georgia's infrastructure development plan", said the S&P Global Ratings.