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. Last Updated: 07/27/2016

Russian Railways May Post Loss in '09

LONDON -- Russian Railways, the country's rail monopoly, may post a loss this year as the global recession cuts industrial production and demand for freight traffic, chief executive Vladimir Yakunin said Tuesday.

"We are going to finish this year, at best, with zero profit and in the worst scenario, we will get losses," he said in an interview at the London School of Economics. "It is a very severe blow to us."

Net income last year was probably less than 4 billion rubles ($110 million), Yakunin said, adding that final results won't be ready until after March. Profit in 2007 was about 84 billion rubles.

The slump "is harmful for the industry I'm representing because we are not producing goods; we offer services," Yakunin said. "There is no industrial production, so what can we carry? Only passengers."

Cargo shipments this year will drop about 19 percent on average, Yakunin said. Freight shipments are down 28 percent this month, following a 33 percent decline in January, he said.

"The drop started in November and it was quite severe in December and in January and the situation now is getting somewhat better, but I cannot say that it is sustainable," Yakunin said. Coal, oil, metal and fertilizer shipments are picking up, he said.

Russian Railways would be interested in gaining or swapping stakes in European partners including Deutsche Bahn, Germany's state-owned railway, he said.

"We have concrete plans with Deutsche Bahn," Yakunin said. "It is under the consideration of the Russian government. In the beginning it would be just buying a small package of shares of Deutsche Bahn by Russian Railways, because they are not privatizing."

The German government delayed Deutsche Bahn's planned initial public offering of its train-operating unit last October because of the credit crisis. It later said the sale might not occur until as late as 2010.

Russian Railways plans to tap the domestic capital market to help finance its operations, Yakunin said.

"The western financial market is completely closed to Russian companies," he said. "We rely on our banking system, which is being supported by the government."

The company said in November that it planned to sell 100 billion rubles of so-called infrastructure bonds and agreed to raise loans from a group of seven Russian banks. The government agreed last May to provide state guarantees on loans by Russian companies seeking to raise capital for transport and infrastructure upgrades.

Russian Railways has already issued two tranches of 15 billion rubles of bonds, Yakunin said. It may also work with foreign financial institutions on selling infrastructure bonds that can be traded abroad, he said.

The company said in October that it would "hold off" on selling $7 billion of 30-year bonds because of the turmoil in global financial markets. Yakunin doesn't see an immediate return to international debt markets and instead foresees raising necessary funds for operations at home.