DTEK reports 2014 results, pre-announces 2015 bond restructuring

Ukraine’s leading energy and utility holding DTEK (DTEKUA) reported UAH 93.0 bln in net revenue (flat yoy) and UAH 15.9 bln in EBITDA (+9.0% yoy) in 2014, according to its report released on March 13. In USD terms, assuming an average exchange rate of UAH 11.92/USD, DTEK’s revenue declined 33% yoy to USD 7.80 bln and EBITDA fell 27% yoy to USD 1.33 bln for the same period. Due to heavy ForEx losses (USD 1.25 bln in the year) and other one-off financial losses (USD 0.57 bln), DTEK’s bottom line turned negative at USD 1.65 bln in 2014.

The holding’s total debt and net debt remained broadly unchanged during the year at USD 3.45 bln and USD 2.84 bln, respectively. Its net debt/EBITDA ratio increased to 2.92x as of end-2014 from 1.55x as of end-2013. The holding has breached some of its debt covenants for loans totaling USD 1,023 mln in 2014, which lead to the reclassification of such loans to short-term from long-term. DTEK is actively working to receive waivers from debt holders. On top of that, in 2014, the holding managed to restructure USD 526 mln in debt (maturing in 2014 and 2015, as we understand) for the years 2016-2017. At the same time, DTEK provided related party loans in the amount of UAH 6.9 bln (USD 437 mln) to undisclosed parties in 2014.

DTEK is due to repay USD 598 mln of its debt in 2015 (excluding the revolving lines and letters of credit of USD 418 mln), according to the holding’s presentation, including a USD 181 mln outstanding Eurobond maturing on April 28. At a March 13 conference call, DTEK management declared it is going to ask to restructure its 2015 Eurobond and is going to offer something to bondholders very shortly. The offer will only concern its 2015 bonds, while no restructuring talks will be initiated for its 2018 bonds, management clarified.

Alexander Paraschiy: The company has very limited time to offer something to the holders of its 2015 notes, so we expect it will happen this week. Currently, the company has enough excuses to offer the restructuring, given that its ability to generate cash is temporarily restricted. Half of its coal-mining assets are locked in the occupied zone of Donbas, thus demanding the coverage of costs while generating no revenue. DTEK also has to import some coal to cover the deficit that arose from its inability to get coal from occupied Donbas.

On top of that, one of DTEK’s thermal power plants, located on the occupied territory, is not receiving electricity from Ukrainian wholesale market. All these hurdles are demanding about USD 40-50 mln per month in extra costs or extra investment into working capital for DTEK. For that reason, DTEK is very unlikely to be able to repay its nearest Eurobond.

As with the case of Metinvest, which offered a restructuring last year after it had paid hefty dividends to its shareholders, DTEK’s bondholders may also have some concerns about the holding’s corporate governance and transparency. In particular, the nature and purpose of the USD 437 mln loan provided to undisclosed parties is not clear at the moment.