DTEK completes conversion of Eurobonds, media report

Ukraine’s leading utility holding DTEK Energy (DTEKUA) has converted a set of old Eurobonds – USD 160 mln maturing in March 2018 and USD 750 mln maturing in April 2018 – into a new single issue now maturing in December 2024, Interfax-Ukraine reported on Dec. 30, citing information from the holding. The company didn’t disclose the exact amount of the issue of the new Eurobonds. DTEK also told Interfax that it successfully completed a tender to convert up to USD 300 mln in banking loans into new Eurobonds. The conversion of part of the loans into Eurobonds, as well as the completion of all formalities regarding the restructuring of DTEK’s banking loans, will be completed in January, according to Interfax.

In other news, a Kyiv court declined on Dec. 29 to satisfy the claim of civic activists, who demanded the cancellation of the new coal pricing methodology approved by the power sector regulator, the NERC, as of May 2016. According to this methodology, steam coal should be priced in Ukraine based on the API2 Index (coal price in Amsterdam, Rotterdam, on CIF basis), plus delivery costs from western Europe to Ukrainian ports, plus transshipment costs. This prices coal in Ukraine at USD 15.7 per ton higher than the API2 Index, based on NERC calculations. DTEK Energy, a near monopoly producer of coal in Ukraine, is the main beneficiary of the new coal-pricing methodology.

Alexander Paraschiy: According to DTEK’s Dec. 22 press release, it was planning to issue new Eurobonds on Dec. 29, but so far we have no official information that this has happened. We expect the holding will finalize all the formalities regarding this issue this week or next. We see a fair spread of new Eurobonds to Ukraine’s sovereign curve at about 400 bps, which implies a bond price of 89% of par.

Thus far, we do not believe that any Ukrainian court will satisfy the claims of the opponents of the new coal-pricing methodology, as we see this methodology as having been applied as a result of some political agreement between DTEK’s owner Rinat Akhmetov and the Ukrainian president. The Ukrainian courts aren’t independent enough to question what was agreed upon at the top levels, in our view. We do not completely rule out any court decision that may harm DTEK’s coal and power business, while see probability of such a decision as very low.