OREANDA-NEWS. Fitch Ratings says rated Russian transportation companies may face weakened financial profiles as a result of economic slowdown although the liquidity profiles of most of rated companies are fairly adequate. As a result, it should not affect the ratings of the majority of rated companies in the short-term, Fitch says in a new report published today.

Our revised financial projections see deterioration, to varying degree, in rated rail transportation companies' financials. Credit metrics are under pressure from lower freight volumes, rising inflation, which may not be fully covered by rail transportation rates, and from high interest rates. Moreover, rail operators' margins in 2015 could be hurt by the 10% Russian Railways' tariff increase, as this will increase empty-run costs per km. However, we expect most rated transport companies to scale back their investment plans and some of them to lower dividends in 2015. These measures should help most companies to stay within our guidelines for their current ratings.

We have revised lower our projections of credit metrics for the sector, with funds from operations (FFO)-adjusted net leverage to rise on average by about 0.6x in 2015 and 0.8x in 2016 and FFO fixed charge coverage to decline on average by 1.4x and 0.9x in the same period. Leverage metrics are expected to increase mainly on the back of weakened operating cash flows although they should remain manageable for most rated transport companies at the current rating levels.

FESCO (B/Rating Watch Negative) will be the exception as the company is unlikely to reduce its leverage below its negative rating guideline, due to weaker operations and a fall in the rouble. This may lead to negative rating action.

We expect most rated transport companies to have sufficient liquidity to cover their scheduled debt maturities in 2015, except for Sovcomflot which may experience a minor and manageable shortfall. We expect about half of Sovcomflot's 2015 repayments to be rolled over, in line with the company's usual practice. Some companies may raise additional funds in 2016 for capex or to refinance maturities. We believe that the companies still have time to manage any liquidity shortfalls.

Available liquidity includes credit lines from large local banks. We expect transport companies to continue to rely on Russian banks for refinancing in the short- to medium-term, as the eurobond market is effectively closed to Russian issuers. However, this leaves them exposed to the health of the banking system.