OREANDA-NEWS. June 30, 2010. Ukrzaliznytsya, Ukraine’s state-owned monopoly railway operator, plans to spend USD 355 mln in 2010 to renew its fleet, Industrial Policy Minister Dmitry Kolesnikov said yesterday at a press conference, according to media reports. The purchases will be sourced exclusively from Ukrainian producers, including 26 locomotives from Luhanskteplovoz (UX: LTPL UK) valued at over USD 152 mln. Ukrzaliznytsya also plans to buy 58 passenger railcars for USD 67 mln and 2,277 freight railcars for USD 122 mln. It plans to make the purchases using USD 9.7 mln of its own money, USD 291 mln in borrowed funds and USD 49.3 mln from the state budget.
Concorde Capital: we note that the new investments are to be 82% financed through new debt issuance, which we see as tough for Ukrzaliznytsya given its problems servicing its USD 550 mln loan syndicated by Barclays (the company missed a payment in November 2009 but said it was close to signing a restructuring deal in May 2010, no details provided yet). If the railway operator succeeds in attracting financing, we see USD 152 mln in orders for Luhanskteplovoz (1.5x higher than our 2010E estimate), and USD 67 mln for passenger wagons from Kryukiv Wagon (UX: KVBZ UK) (17% of 2010E revenue). We expect the freight car orders to be placed uniformly among Ukrainian manufacturers, which would imply ~USD 30 mln in additional sales (8% of 2010E revenue for Kryukiv Wagon, 11% for Stakhaniv Wagon (UX: SVGZ UK), 20% for Dniprovahonmash (UX: DNVM UK), 4% for Azovmash (UX: MZVM UK, UX: AZGM UK)). We expect a positive market reaction for liquid names in the sector: LTPL, KVBZ and SVGZ.