Moody's downgrades Russian Railways

Moody's Investors Service said it downgraded the senior debt of Russian Railways JSC and RZD Capital plc to Baa2 from Baa1. The outlook is negative.

In addition, Moody's placed on review for downgrade the Baa2 senior debt rating of subsidiary Federal Passenger Co. OJSC.

These actions follow Moody's downgrade of Russia's government bond rating to Baa2 from Baa1 on Oct. 17.

The downgrade of Russian Railways reflects Moody's view that the company has strong linkages with the government, its ratings remain constrained by that of the sovereign and it continues to depend on the government's willingness and capacity to maintain the scope of its support (including tariff indexation, subsidies, equity injections and long-term low interest-rate financing) at a level sufficient for Russian Railways to maintain its financial metrics in line with its conservative financial policy.

The negative outlook on Russian Railways is in line with the negative outlook for the sovereign rating and reflects the fact that a potential downgrade of Russia's sovereign rating is likely to result in a downgrade of the company's rating, the agency said.

The review for downgrade of Federal Passenger reflects Moody's concern that the company’s financial metrics will be affected by the weakened operating environment, which is reflected in the 7% decline in passenger turnover in the first nine months of 2014, and a degree of uncertainty over the amount of state subsidies to be provided to the company in 2015.

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