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12.05.2015

Notification of Defaults under Certain Financing Arrangements

Ukrainian Railway companies under the management of the State Administration of Railways Transport of Ukraine (Ukrzaliznytsia) (the “Railways” and the “group”) have failed to make principal payments under certain bilateral loan agreements with Ukrainian lenders. Such defaults have triggered a cross default under certain other financings, including the loans underlying the U.S.$500,000,000 9.5 per cent. Loan Participation Notes due 2018 issued by Shortline plc (the “eurobond”).

The above-mentioned defaults should be considered in the context of the widely reported events occurring in eastern-Ukraine, which has caused operational disruption and had a significant adverse impact on the group’s business and financial performance. See below for an update on the financial impact on the group.

It is possible that other events of default may have occurred and Ukrzaliznytsia is currently considering the impact of certain events on the terms of the group’s financings. In particular, Ukrzaliznytsia is doubtful whether it continues to exercise management control over Donetsk Railway.

Ukrzaliznytsia will commence discussions with the group’s lenders in the coming weeks in relation to a possible debt operation in order to reach a solution which places the group on a sustainable economic and financial path. The debt operation would target debts owed by the group to the private sector, including the eurobond which is also part of the publically announced debt operation being pursued by the Ministry of Finance in line with provisions of the International Monetary Fund’s Extended Fund Facility.

Financial Update

Ukrzaliznytsia’s financial and operational results during 2014 were significantly impacted by negative macroeconomic trends throughout the Ukrainian economy, which are largely expected to continue throughout the remainder of 2015. In 2014, Ukraine’s gross domestic product declined by an estimated 6.9%, with a similar annual rate of decline expected for 2015. Rising inflation, devaluation of the Ukrainian hryvnia and increases in energy prices (especially diesel fuel) have significantly impacted the Ukrainian railway industry and are further expected to continue.

In line with these macroeconomic trends, Ukrzaliznytsia experienced declines in both cargo and passenger traffic volumes during the year ended 31 December 2014, which led to a significant decrease in Ukrzaliznytsia’s total revenues. Ukrzaliznytsia’s management budget scenarios anticipate further declines in cargo and passenger traffic volumes throughout 2015. While Ukrzaliznytsia’s operating expenses also declined primarily as a result of savings in procurement costs, repairs and modernisation activities, the decrease in total revenues was more significant. Capital investments are planned to be maintained at reduced levels during the remainder of 2015, but certain capital expenditures will continue to be necessary to ensure railway traffic safety as many fixed assets approach the end of their useful lives.

About Ukrzaliznytsia

Established in December 1991 and acting under Resolution of the Cabinet of Ministers of Ukraine No. 262 “On Approval of Regulation on State Administration of Railways Transport of Ukraine” dated 29 February 1996, Ukrzaliznytsia’s management sphere covers the railways of Donetsk, Lviv, Odessa, Pivdenna (Southern), Pivdenno-Zakhidna (Southwestern) and Pridniprovska Railways, and also other enterprises and organizations of integrated industrial-engineering complex, that enables freight and passengers transportation in Ukraine.

Enquires

For enquires please contact: uz@uz.gov.ua