DTEK Energy initiates another debt restructuring

Ukraine’s leading coal and power holding DTEK Energy
(DTEKUA) reported on Mar. 27 it is “in the process of developing a standstill
and debt restructuring proposal” on its Eurobond and certain bank debt. Because
of that, the company won’t pay its quarterly coupon due Apr. 1 and interest on
banking debt due Mar. 31, it reported. The payments will instead be made “in
accordance with the terms of the proposal”.

Due to the state of emergency declared in Ukraine on
Mar. 25, “DTEK Energy must take all required steps to maximize the
concentration of resources in order to provide maximum support to the state and
secure the energy supply in Ukraine,” the company said, citing its CEO
Dmytro Sakharuk. The state of emergency has been officially recognized as a
force majeure event, the company stated. At the same time, it’s not a default,
Sakharuk said on Mar. 28, commenting on the decision to Interfax-Ukraine.

In other news, DTEK Energy reported on Mar. 27 that it
has suspended the operation of two of its three coal mining assets, Dobropillia
Coal and Bilozerska Mine. The assets mined 4.2 mmt of ROM coal in 2019, or 19%
of DTEK Energy’s total. The decision was made due to “a systemic crisis in the
energy sector, continuing imports of coal and electricity and the regular interference
of politicians in the market,” the company said. Such a situation has led to
reduced demand for Ukrainian coal, the company stated. It also complained about
the decisions of the Ukrenergo state power dispatching operator, which has been
forcing the power units of DTEK Energy to shut down despite existing contracts
to sell produced electricity.

Recall, DTEK Energy completed the restructuring of
most of its banking debt and Eurobonds in 2017, based on which it agreed to
repay most of its existing debt in 2023-2024. Based on the company’s 1H19
presentation, it is scheduled to repay about USD 20 mln p.a. in 2020-2022.

Alexander Paraschiy: Taking into
account that the company has no big debt repayments in the short term, the
decision to default looks unexpected. It means DTEK Energy sees no prospects
from the electricity market reform launched in July, which it had designed and
lobbied. The reform, so far, indeed has given benefits to DTEK Energy as the
average achieved electricity prices of its power plants collapsed (prices were
12%, 15% and about 30% less yoy in 3Q19, 4Q19 and 1Q20, respectively), while
the company anticipated the opposite effect.

The recent moves suggest the company has little ideas
on how to operate in the current market or how to amend its rules to DTEK’s
benefit. We were sure DTEK would be able to make the needed adjustments, but
now doubts have surfaced.