DTEK Energy adjusted EBITDA declines 11% in 1H19

Ukraine’s leading coal and power holding DTEK Energy provided
its semi-annual financials on Sept. 27, based on which its top line improved
24% yoy to UAH 53.43 bln and adjusted EBITDA decreased 11% yoy to UAH 11.03
bln. The holing’s bottom line dropped 47% yoy to UAH 3.34 bln. The growth rates
of its key financial indicators were adjusted for the fact that in 2018, the
holding lost control over its Kyiv-based power-generating assets and spun off
its power distribution assets.

DTEK’s net debt slid 3% YTD to UAH 50.69 bln, while
its net debt to LTM EBITDA ratio worsened to 2.06x as of end-June 2019, from
1.97x as of end-December 2018. Out of the total amount of its debt, USD 107 mln
(5%) is still subject to restructuring, which DTEK management now expects to be
completed by the end of this year. Management also did not rule out an attempt
to refinance its existing Eurobond, but highlighted that important
preconditions for that is its rating upgrade (which can only follow the
completion of debt restructuring).

Among other problems, DTEK sees USD 264 mln of receivables
from the Energorynok state company (for the electricity it purchased by June
2019), whose recovery will require separate legislation (due to the market
reform introduced in July, Energorynok is no longer an electricity market
participant).

Commenting on achieved power prices in 2H19, DTEK
management said the holding’s prices under bilateral contracts (by which most
power is sold by DTEK) more or less correspond to prices seen on the day-ahead
market.

Alexander Paraschiy: The
holding’s reported 1H19 revenue and adjusted EBITDA are in line with our calculations
based on earlier provided abridged financials (though we underestimated the
company’s adjusted EBITDA by 2%). As before, we expect its 2H19 results will be
weaker due to lower electricity prices, so we stick to our view that DTEK’s
adjusted EBITDA in 2019 will decline by about 15% yoy (on a like-to-like
basis). Such a decline will not harm the company’s solvency. Therefore, we
remain bullish on DTEKUA bonds.