DTEK boosts coal mining 37% yoy in November

Ukraine’s leading coal and utility holding DTEK Energy (DTEKUA) mined 2.9 mmt of coal in November, which is +37% yoy and +5% m/m, according to its Dec. 2 press release. The monthly result implies the holding mined 26.3 mmt of coal in Ukraine in 11M16, or +7% yoy. DTEK is continuing to boost its coal mining in line with increased demand for coal from the power plants of DTEK, which are working with an additional load in the second half of the year, according to the press release.

In 2H16, the holding is planning to mine by 3.5 mmt of coal more than in 1H16. This suggests its annual plan is to mine about 29.2 mmt of coal in 2016 (+9% yoy).

In separate news, a London judge ruled on Dec. 2 to allow DTEK Energy to offer a restructuring of its Eurobonds, Bloomberg reported the same day. Recall, DTEK initiated a new scheme of arrangement vote in late November, subject to approval by the High Court of Justice of England. Upon approval, bondholders will be offered to vote on the postponement of the maturity of both Eurobonds from 2018 to 2024, with an increased coupon of 10.75% to be paid in cash and PIK, according to the schedule.

Alexander Paraschiy: In July-November, DTEK Energy boosted its average monthly coal production by 25% compared from 1H16, which is mostly a result of improved output of its anthracite-producing mines, located on the occupied territories of Ukraine. If it produces 2.9 mmt of coal again in December, DTEK will meet its announced annual plan, thus outperforming our initial forecast for its mining growth of 5% yoy.

With such mining results – as well as achieved 4Q16 electricity prices that could be higher than we expected – DTEK Energy may show about a doubled qoq EBITDA in the quarter, possibly beating its annual EBITDA forecast of USD 550 mln. The better-than-expected fundamentals, as well as the expected smooth restructuring of DTEK’s debt, allow us to keep our positive view on DTEKUA bonds.