BAKU, Azerbaijan, June 30
By Tamilla Mammadova – Trend:
S&P Global Ratings (S&P) revised Georgian Railway (GR's) outlook to Negative on heightening refinancing risk; 'B+/B' Ratings affirmed, Trend reports citing the S&P.
"We expect that Georgian Railway's leverage will remain high over the next year, and that liquidity pressure will intensify as the company approaches maturity of its $500 million bonds due in July 2022," S&P said.
As reported, since GR does not generate sufficient cash flow to repay the bonds and the state’s support is uncertain at this stage, the company will have to rely on refinancing.
"We also note that access to international capital markets could be challenging. We are therefore revising the outlook on GR to negative affirming the 'B+/B' ratings," the report said.
According to the company, although GR's management is proactively seeking refinancing ahead of the July 2022 maturity on its $500 million bonds, the upcoming refinancing poses a meaningful credit risk.
"In our base-case scenario, we expect GR to generate broadly neutral free operating cash flow (FOCF) in 2020-2022, on top of the company's current cash reserve of 260 million lari (about $85 million)," the S&P said.
As reported, GR's business remains fundamentally exposed to volatility in transportation volumes, but lari devaluation supports revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA) margin.
Amid efforts to contain the coronavirus, Georgia banned passenger traffic on its domestic railway on March 22 and lifted the restrictions on June 15.
"As a result, we expect passenger traffic could drop up to 70 percent in 2020 compared to 2019 and a full recovery could take up to two years. We base our assessment of extraordinary government support to GR as the largest employer in the country with its key role in implementing infrastructure development. GR is 100 percent state-owned and the government oversees major strategic decisions," the report said.
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