DTEK Renewables places debut EUR 325 mln Eurobond

DTEK Renewables (DTEREN), a subsidiary of Ukraine’s
leading energy holding DTEK and the biggest green energy producer, placed its
debut Eurobond for EUR 325 mln, Interfax-Ukraine reported on Nov. 5. The
placement rate was 8.75%, according to Interfax. The bond has a coupon rate of
8.50% paying semi-annually, matures in November 2024 and is callable in 2021.

The bond has a preliminary rating of B (EXP) from
Fitch Ratings (on par with sovereign) and B- (EXP) from Standard & Poor’s
(one notch below sovereign).

As of end-September, DTEK Renewables operated wind and
solar plants of a total capacity of 571 MW and it is planning to raise its
total capacity to 950 MW by the end of 2019. It expects its 2019 EBITDA will
reach EUR 141 mln, while its total debt (including the new bond) should reach
EUR 753 mln by the year end, implying gross leverage of 5.3x. In 2020-2022, the
company expects its EBITDA will be EUR 251-252 mln and its gross leverage
should fall to 2.7x in 2020 and 2.2x in 2022.

Alexander Paraschiy: The
placement rate implies a 3.9 pp spread to Ukraine’s sovereign euro-denominated
bond maturing in seven years and a 3.0pp spread to the Naftogaz (NAFTO)
five-year bond. Therefore, the rate looks too high, which can be explained by
investors’ benchmarking of DTEK Renewables’ bond to the bond of related company
DTEK Energy (DTEKUA). The latter’s USD-denominated bond trades at a 3.9pp
spread to sovereign curve as DTEK Energy has a much weaker credit rating than
Ukraine’s because it has not fully completed its debt restructuring started in
2015.

It was not the best timing for DTEK Renewables to
place the debt, providing DTEK Energy has yet to finalize its debt
restructuring. Therefore, DTEK Renewables’ rush in placing the bond and its
tolerance of a high placement rate look suspicious.

DTEK Renewables operates in a segment where high
power rates, fixed in euros, are protected by legislation till the end of 2029.
Therefore, it’s relatively easy for the company to forecast its financials in
euros. At the same time, there is still a risk that the high rates will be
revised by the parliament, although such a risk seems to be low at the moment.
Keeping in mind such risk, we consider the yield of DTEREN bond as attractive.