DTEK reports weak 2015 results, not servicing loans since October

Ukraine’s leading coal and power holding DTEK Energy (DTEKUA) reported a 2.2% yoy increase in net revenue to UAH 92.7 bln in 2015, according to its March 18 filing. Its gross profit fell 51% yoy to UAH 5.3 bln, while net loss from continuing operations more than doubled to UAH 35.7 bln.

DTEK reported a 66% yoy decrease in adjusted EBITDA to UAH 4.1 bln, while our estimates show its EBITDA fell 50% yoy to UAH 6.0 bln. The EBITDA of its flagship segment, coal & power, decreased 25% yoy to UAH 8.6 bln in 2015, we estimate. Its operating cash flow before working capital changes fell 53% yoy to UAH 6.9 bln. Its receivables increased by UAH 3.2 bln during the year. The holding reported its receivables from wholesale market operator Energorynok amounted to UAH 5.1 bln as of end-2015, and have decreased by UAH 1.4 bln since then.

The holding’s end-2015 debt stood at UAH 57.9 bln (about USD 2.41 bln), with only 5% of it being denominated in the local currency. Its net debt (including financial derivatives and cash) was UAH 62.7 bln (USD 2.61 bln) as of end-2015. Its net debt / EBITDA ratio, therefore, was over 15x – certainly much more than any covenants. As DTEK was in breach on covenants on banking debts, all such debt (USD 1.53 bln) was classified as short term as of end-2015. The holding reported it is scheduled to repay USD 566 mln in loans this year.

DTEK also reported it’s in talks with banking creditors on restructuring of all its debt. The holding is “crucially dependent on the willingness of the Group’s lenders not to demand repayment” and “postponing the payment of due interest,” the holding’s auditor wrote. Since October, DTEK “has not paid interest and principal with some minor exceptions,” DTEK wrote.

DTEK didn’t hold a Q&A session during its March 18 conference call.

Alexander Paraschiy: DTEK’s financial results are weaker than we expected. This year, we still expect some turnaround as the holding managed to boost its coal mining on the occupied territory of Ukraine. We also expect some adjustment of the average electricity rates of its thermal power plants that will enable its flagship segment to improve cash flow generation. Nevertheless, it becomes increasingly apparent that the holding is currently not capable to smoothly pay its debt, and even most of the interest on its debt. In the coming two weeks, DTEK is due to pay more than USD 38 mln in coupons on its two Eurobonds. At this stage, there is a high risk that DTEK will postpone these payments. We expect a negative reaction from both of DTEK’s Eurobonds on the provided results. At the same time, we believe that the bonds have room for appreciating in the mid-term.