Fitch: Negative Rail Transport Outlook for FSU Countries; Stable for Europe

Fitch: Negative Rail Transport Outlook for FSU Countries; Stable for Europe

Fitch: Negative Rail Transport Outlook for FSU Countries; Stable for Europe

The FINANCIAL -- Link to Fitch Ratings' Report: 2016 Outlook: European and Former Soviet Union Rail Fitch Ratings-Moscow-11 December 2015: Fitch Ratings says the sector outlook for rail transport companies is stable for Europe and negative for former Soviet Union (FSU) countries for 2016.

Fitch expects European rail transport companies to see good demand, improvement in operating cost drivers as lower oil prices feed through P&L and internally generated cash flows balanced with investment plans and shareholders returns. However, a subdued European economy and intense competition could pressure on the near-term growth of the transport and logistics business.

The outlook for rail companies in FSU countries has been revised to negative from stable, reflecting the pressure from continued weak market fundamentals on freight transportation volumes and rates and local currencies' weakness. We expect pressure on volumes and rates to continue in most FSU countries in 2016 because of challenging market fundamentals and increasing use of pipelines for crude oil transportation.

We expect most rated companies to have limited credit metric headroom in 2016 due to weak market fundamentals. Coverage metrics will be affected by increased interest rates in most FSU countries.

Railway industry continues to face regulatory changes. UK passenger companies face potential regulatory changes in the form of adoption of the bus franchising model in urban areas outside London although the near-term risk is low. Ongoing railway structural reforms in FSU countries pose uncertainty for companies.