DTEK’s B2 rating outlook revised to stable from negative by Moody’s

Yesterday Moody’s Rating Agency announced a revision of DTEK’s B2 rating outlook to stable from negative. The agency said decision came on the back of DTEK’s improved liquidity position and the better macroeconomic environment in Ukraine. DTEK used most of its USD 500 mln 5Y Eurobond placement to repay its short-term debt, while securing an additional USD 300 mln of funding under committed credit lines. At the same time, Ukraine’s economic recovery led to a 80% y-o-y increase in revenues in 1H10 to UAH 10.6 bln (USD 1.3 bln), while EBITDA came in at UAH 2.6 bln (USD 333 mln, +80% y-o-y), implying a 25% EBITDA margin (22% in 2009). We expect revenues to be up some 42% to USD 2.7 bln for full-year 2010, with EBITDA margin around 26%-27% (22% in 2009 and 26% in 2008). As of end-1H10, DTEK’s gross debt stood at close to USD 700 mln and we do not expect any significant changes by year-end, implying gross Debt/EBITDA at ~1x and EBIT interest coverage of 9x in 2010F. DTEK’15 Eurobonds are now traded at 8.3% YTM or ~173 bps above Ukraine’s sovereign curve and we see them as an attractive investment opportunity.