DTEK gains approval to purchase two power DisCos

Ukraine’s Antimonopoly Committee decided on Apr. 25 to
allow DTEK Oil&Gas, a subsidiary of DTEK group, to purchase controlling
stakes in two large power distribution companies, Kyivoblenergo and
Odesaoblenergo (ODEN UZ). By allowing the deal, the committee admitted that
DTEK’s share in Ukraine’s distribution segment will significantly increase as a
result. To prevent threats of such high concentration on the market, the
committee required DTEK’s grid companies to disclose each case of not signing a
deal with independent electricity suppliers. It also decided to restrict DTEK’s
representation in the Wholesale Electricity Market Council to four members (out
of ten).

Kyivoblenergo and Odesaoblenergo are the sixth- and
seventh-largest power distribution companies in Ukraine respectively (out of a
total of 33), accounting for 9.7% of electricity distributed in Ukraine in
2018. The controlling stakes in these companies belong to VS Energy, a company
with Russian roots.

Alexander Paraschiy: This deal
does not change the market significantly as it essentially involves one large
business group – VS Energy, which had controlled (until the deal) eight power
DisCos distributing 19.5% of Ukraine’s electricity in 2018 – selling two
distributors to another top holding, DTEK, which controls five DisCos
responsible for 36.2% of power distribution in 2018. Following the deal, DTEK’s
share in power distribution will increase to 45.8% (based on 2018 data) while
VS Energy’s share will fall to 9.8%.

As we wrote before, we see this deal as having a potentially negative
impact on DTEK’s issuer of Eurobonds, DTEK Energy (DTEKUA). DTEK Oil&Gas is
among the biggest debtors of DTEK Energy, and spending for such large companies
as Kyivoblenergo and Odesaoblenergo puts into question the acquirer’s ability
to smoothly service its debt to DTEK Energy.