Fitch Rating has affirmed JSC Georgian Railway's (GR) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BB-' with a Positive Outlook.
The affirmation reflects Fitch's unchanged assessment of GR's Standalone Credit Profile (SCP) of 'b+'. Combined with the strong expectation of extraordinary support from Georgia (BB/Stable), this leads to a single-notch differential between GR's IDRs and Georgia's sovereign IDRs.
According to the document, preliminary data shows a moderate decline in GR's revenues in 2023 that will lead to a deterioration of its operating performance from the 2022 peak. However, performance will continue to benefit from economic growth in the region and the reorientation of Asia-Europe cargo flows to southern routes, including Georgia, following the Russian-Ukrainian war and respective restriction on the cargo transit via Russia.
This assessment reflects GR's fairly well-defined costs with predictable changes. GR's cost structure is stable and is dominated by staff costs, which made up about half of operating spending in 2023, followed by logistics services (15%) and electricity and fuel (11%). Despite planned downsizing and reductions in headcount, staff costs will remain the largest spending item, accounting for about half of operating spending over the scenario horizon.
From 2024, the Georgian government has included GEL8.0 million compensation for the passenger business in its 2024 budget. In Fitch's view, the scale of support is insufficient to justify higher assessment. However, expansion of support may justify future reassessment.
GR's debt is all US dollar-denominated and as of end-2023 mostly comprised its USD500 million 4% Eurobonds due in 2028. This expose the company to refinancing and FX risks, although the latter is partly offset by GR's freight tariffs being in US dollars and Swiss francs. Potential liquidity support from the government is limited, since historically GR received mainly indirect and non-cash support. The company does not have a record of tapping local capital market and its ability to raise liquidity from the local banks is limited by the 'BB' counterparty risk.
In 1Q2024, Georgian Railways received an income of GEL 152 million, which increased by 10% or GEL 14 million compared to the corresponding period of the previous year.
As of the financial report, the assets of the Georgian Railway amount to GEL 2.5 billion, while the liabilities - GEL 1.64 billion.
