Fitch Rating has revised the Outlook on JSC Georgian Railway's (GR) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to Stable from Negative and affirmed the IDRs at 'BB-'.
According to the recent report, the rating actions follow the revision of Georgia's Outlook to Stable from Negative. Fitch believes that this rating action has a direct impact on GR's Outlook as it is considered a government-related Entity (GRE) of the Georgian state based on Fitch's GREs Rating Criteria.
Fitch classifies GR as an entity ultimately linked to Georgia under its GRE Rating Criteria and assesses the GRE support score at 22.5, reflecting a combination of following assessment of Key Risk Factors: a 'Strong' assessment for status, ownership and control and financial implications of default, and a 'Moderate' assessment for support track record and socio-political implications of default.
Based on this assessment Fitch applies a top-down approach under its GRE Criteria, which combined with GR's SCP assessment at 'b+' under Fitch's Public Sector, Revenue-Supported Entities Rating Criteria, and results in a single-notch differential of GR's IDRs with Georgia's sovereign IDR (BB/Stable).
“The affirmation reflects our unchanged assessment of strength of linkage with the Georgian government and the government's incentive to support GR since our last review on 20 November 2020. GR's Standalone Credit Profile (SCP) is 'b+', which reflects a 'Weaker' assessment for revenue defensibility, 'Midrange' assessment for operating risk, and 'Weaker' financial profile with leverage (Fitch's net adjusted debt to EBITDA) approaching 6.5x in our rating case scenario at end-2024” – reads the statement.
Fitch identifies both - the factors that could improve or downgrade the rating. Namely, an upgrade of Georgia's sovereign rating, provided there is no deterioration in GR's SCP and support score under Fitch’s GRE Criteria; upward reassessment of the GRE support score and/or a stronger financial profile, resulting in the SCP being on par with or above the sovereign's – these are the factors that could, individually or collectively, lead to positive rating action/upgrade. On the other hand, a downgrade of Georgia's sovereign rating; dilution of linkage with the sovereign, resulting in the ratings being further notched down from the sovereign's and/or downward reassessment of the company's SCP, resulting from deterioration of financial profile due to material increase in debt or weakening of liquidity position - could, individually or collectively, lead to negative rating action/downgrade.