DTEK privately proposes debt plan, gets rejection, report says

Ukraine’s leading coal & utility holding DTEK Energy (DTEKUA) offered a debt restructuring proposal to the members of an ad hoc creditors committee on Sept. 14, according to a report by Reorg Research, a distressed debt research and news provider. As we learned from the report, DTEK offered its bondholders to repay Eurobonds in bullet in December 2023. It also offered an annual coupon rate of 8% for the bonds, with cash payments of 4% in 2017 that gradually increase to 8% till 2023.

The accumulated unpaid amount of coupons is offered to be repaid in equal installments in 2024-2026, with no interest applied to the capitalized coupons. Unpaid coupons during the 2016 standstill period are scheduled to be repaid in equal installments in 2018-2022. The holding is also offering a 1% consent fee, payable in three annual instalments in 2016-2018.

In its proposal, DTEK forecasted its annual EBITDA at USD 553 mln in 2016 and USD 791 mln in 2017, gradually increasing to USD 1,319 mln in 2026. Its CapEx, which will be limited by the restructuring deal, is planned at USD 284 mln in 2016, USD 477 mln in 2017, and will be between USD 430 mln and USD 687 mln in 2018-2026. The offered deal will impose some restrictions on dividends.

In the same report, Reorg Research reported that the ad hoc committee of DTEK noteholders released a Sept. 15 statement declaring it’s not supportive of the proposal as it “does not give creditors a fair economic return.”

Alexander Paraschiy: Based on what we learned from the report, we estimate that the NPV of DTEK’s USD 750 mln Eurobond is 66-68% of par and the NPV of its USD 160 mln Eurobond is 67-69% of par (assuming a 15% discount rate). This is slightly higher than we initially expected (55% to 65% of par), but broadly in line with the current market prices of the bonds.

Given the opposition from bondholders, there is a probability that DTEK will have to improve its offer soon. In particular, it would be logical that DTEK will offer much sooner repayment of the accumulated unpaid coupons during the standstill. Also, it looks like DTEK’s CapEx appetites could be smaller. At this stage, we retain our neutral view on the performance of DTEKUA Eurobonds.