Ukrzaliznytsia bondholders do not agree to the company’s proposal to postpone payments
2 January 2025 14:56
The holders of Ukrzaliznytsia’s 2026 and 2028 bonds refused to agree to the changes in the terms of the company’s debt obligations. This was reported by Ekonomichna Pravda, citing a report by Rail Capital Markets on the Euronext exchange, "Komersant Ukrainian" reports.
As it is known, Ukrzaliznytsia JSC decided to capitalize about $160 million of accumulated interest on Eurobonds and asked bondholders to approve changes that provided for the postponement of payments for another year and adjustments to the terms. This was stated in the Memorandum of Consent dated December 16, 2024.
Ukrzaliznytsia, in particular, said that during these 12 months of deferral, it plans to limit cash outflows, preserve liquidity by attracting only new debt that will exceed the amortization of the principal, and maintain the ability to service its lease agreements and short-term working capital loans, which are an important part of the company’s daily operations.
By the way, as Bloomberg reported at the time, the dollar-denominated bonds issued by Ukrzaliznytsia fell significantly in price immediately after the company announced its request to reschedule interest payments on both bonds. For example, the 2026 bond fell by 6 cents to 82 cents per dollar, the largest one-day drop since June 2023. However, some of the losses were offset. The security maturing in 2028 also fell by 0.46 cents to 77.4 cents.
Applications from bondholders for consent to Ukrzaliznytsia’s request were accepted until December 27 inclusive. The company expressed its readiness to pay a 0.5% fee to the participants. The meeting to approve the company’s proposals was scheduled for December 31, with a quorum of 2/3, of which 75% were to vote in favor.
However, during the voting, the required number of votes to approve the decision to postpone the payments was not obtained. Thus, the proposed changes will not be implemented and no compensation payment for the consent is due.
Why did Ukrzaliznytsia request a deferral of payments?
According to Interfax-Ukraine, UZ’ s proposal was based on the fact that Ukraine continues to be exposed to the armed aggression of the Russian Federation, which targets vital civilian and industrial infrastructure, in particular, intensifies attacks on the energy system, which leads to further deterioration of the company’s business, results of operations, financial condition and prospects, including forecasts for expected performance in 2025 and beyond.
In particular, the company then estimated that in 2024 its net loss would be between UAH 1.5 billion and UAH 2.5 billion, depending on exchange rates and related costs, as well as the effects of Russian attacks.
It was noted that in December 2024, the Supervisory Board of UZ approved proposals to index regulated freight tariffs by 37%, which are expected to cover the most important operational needs, as well as minimal capital expenditures to maintain key assets in good working order.
At the same time, as noted in the document, even if the tariff is implemented, it is not expected that such an increase will provide sufficient cash flows.
Interfax-Ukraine also reminded that in late August, Fitch Ratings upgraded the long-term foreign and local currency issuer default ratings (IDRs) of UZ and its $894.9 million Eurobonds to ‘CC’ from ‘C’.
Fitch Ratings also noted at the time that the repayment of $594.9 million in July 2026 (almost 50% of UZ’s debt) and $300 million in July 2028 (24%) poses a high refinancing risk for the company due to its very limited access to the financing markets. At the time, Fitch did not see how the company intended to finance the 2026 payment and reminded that Ukrzaliznytsia was due to resume deferred coupon payments in January 2025 after receiving a deferral right from bondholders in January 2023.
