Moody’s downgrades DTEK rating to sovereign

Moody’s Investors Service downgraded the Eurobond rating of Ukraine’s biggest energy and utility holding DTEK (DTEKUA) to Caa3 from Caa2, the agency reported on Feb. 12. The downgrade reflects Moody’s view that DTEK’s liquidity will be “sufficiently stressed over the next 12 months” and the risk is high that the holding will not meet all of its debt obligations this year. DTEK’s end-2014 cash does not cover its short-term debt obligations, according to the estimates of Moody’s analysts. Moreover, the large foreign currency debt and the large share of local currency sales in the holding’s total revenue heightens the risk of DTEK’s cash insufficiency in case of further hryvnia devaluation, according to Moody’s.

Alexander Paraschiy: DTEK used to be one of the three names in the Ukrainian universe whose Eurobonds earned a better-than-sovereign rating from Moody’s (the others are Ferrexpo and Metinvest). Now DTEK’s rating has been revised to sovereign, which looks logical given the company’s high exposure to the hryvnia in its operations and a record amount of debt repayable in 2015 (about USD 950 mln, out of which USD 200 mln are Eurobonds maturing in late April). We also won’t be surprised if Moody’s also downgrades the rating of DTEK’s related steel holding Metinvest (METINV), which is scheduled to repay its Eurobond in early May at a total of USD 114 mln.