2020-04-04 IFR Magazine

94 International Financing Review April 4 2020

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DTEK surprises market

„ UKRAINE Restructuring did not appear on the cards

Ukraine’s DONBASS FUEL ENERGY CO HOLDING, the

country’s largest power provider, has surprised

the market after it announced it would not pay

interest on its bank debt or its US$1.3bn 10.75%

amortising bonds, ahead of a potential debt

restructuring.

The company did report weak preliminary full-

year 2019 results about two months ago but a

restructuring did not appear on the cards.

“We did not see signs of an imminent

restructuring then and, if bonds prices are a

measure of market sentiment, neither did the

market,” investment banking services group

Tellimer said in a credit research note.

Now restructuring advisers are circling the

company for mandates on a potential debt

restructuring.

“I think they will have to engage legal and

financial advisers given it appears they botched

it with noteholders. This has come as a complete

surprise to them,” said one restructuring adviser.

In July 2019, Ukraine made a transition to

a new electricity market model with prices

established daily, based on the balance of

supply and demand.

The transition to the new pricing model, an

abnormally warm winter and the reopening

of electricity imports from Russia and Belarus

dramatically reduced prices and DTEK

Energy’s profitability in the second half and

particularly in the fourth quarter of 2019,

Tellimer said.

“Electricity prices remained weak in the first

quarter of 2020, which suggests that fourth-

quarter 2019 could be a good proxy for 2020.

In this case, DTEK’s Ebitda could fall below

US$200m, causing net leverage to increase to

10 times and interest to be barely covered, if at

all,” the Tellimer report said.

DTEK said it had US$90m of debt repayments

in 2020–22, with most of its US$2bn debt

maturing in 2023–24.

However, Tellimer said DTEK could still

struggle to pay interest on debt unless the

electricity price recovers, with the company now

facing the prospect of a debt haircut

“The company’s Ebitda would not be enough

to cover interest expense and refinancing even

a small amount of debt could be difficult. If

this is the case, then DTEK’s debt is too high

for the company and a haircut on the principal

is necessary,” the investment banking services

group said.

In March 2017, DTEK agreed the

restructuring of circa US$875m of its

bank debt and US$1.34bn of outstanding

Eurobonds with its creditors after two years

of negotiations.

It had looked to refinance the restructured

debt in 2018 but as it was repaying its debt

successfully at that point, the company decided

not to return to the capital markets.

Sandrine Bradley

9 IFR Loans 2327 p 75 - XX.indd 94 03 / 04 / 2020 19 : 26 : 37