Fitch Downgrades Eastcomtrans to ‘CCC’; Withdraws Ratings

Fitch assigns 'BB' IDR to Kcell JSC; Outlook Stable

Fitch Ratings-London-16 December 2016: Fitch Ratings has downgraded Eastcomtrans LLP’s (ECT) Long-Term Issuer Default Rating (IDR) to ‘CCC’ from ‘B’ and withdrawn the ratings. Fitch has chosen to withdraw ECT’s ratings for commercial reasons. A full list of rating actions is at the end of this commentary.

KEY RATING DRIVERS

The downgrade reflects increased pressure on ECT’s liquidity, as a result of which Fitch views the company’s default as a real possibility.

ECT’s bondholders 15 December 2016 did not accept a proposed change of terms (including extension of maturity) of the company’s eurobond (outstanding USD59m, due April 2018). In Fitch’s view, ECT will be dependent on refinancing (attracting new funding) in order to be able to repay the Eurobond and a further USD105m (including USD74m principal) of funding maturing in 2017-2018, as the current cash balance (USD25m) and internal cash generation (projected by management at USD91m for 2017-2018 combined) is likely to be insufficient. Potential funding acceleration as a result of covenant breaches could also increase near-term liquidity pressure and default risk.

ECT’s financial profile deteriorated sharply in 2015 as a result of losses driven by the company’s short FX position, which consumed 59% of its capital. Stabilisation of the exchange rate and performance in 2016, combined with moderate deleveraging, have enabled the debt/tangible equity ratio to recover to a reasonable 3.7x at end-9M16 (end-2015: 5.5x; end-2014: 1.4x). However, higher than historical leverage means that the company now has limited unpledged assets which it could use to secure the additional funding it needs to support its liquidity.

RATING SENSITIVITIES
Not applicable.

The rating actions are as follows:

Long-Term IDR downgraded to ‘CCC’ from ‘B’; withdrawn
Short-Term IDR downgraded to ‘C’ from ‘B’; withdrawn
Long-Term local currency IDR downgraded to ‘CCC’ from ‘B’; withdrawn
National Long-Term Rating downgraded to ‘B-(kaz)’ from ‘BB(kaz)’; withdrawn
Senior secured rating downgraded to ‘CCC’ from ‘B’, Recovery Rating ‘RR4’; withdrawn

Contact:
Primary Analyst
Aslan Tavitov
Director
+44 20 3530 1788
Fitch Ratings Limited
30 North Colonnade
London E14 5GN

Secondary Analyst
Ruslan Bulatov
Associate Director
+7 495 956 9982

Committee Chairperson
James Watson
Managing Director
+7 495 956 9901

Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com; Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com.

Additional information is available on www.fitchratings.com

«Eastcomtrans», LLP is the largest rail operator in the transport market of the Republic of Kazakhstan.

  • Eastcomtrans is the largest equipment operator in the Republic of Kazakhstan and ranks among the leaders on the Kazakh rolling stock operators market;
  • Eastcomtrans has been operating on the transport market of the Republic of Kazakhstan for more than 9 years;
  • It has established its branches and representative offices in 7 cities in Kazakhstan;
  • Rolling stock of the Company amounts to 12 900 wagons
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