DTEK Energy keeps 2018 CapEx flat, gets Fitch C rating confirmed

Ukraine’s leading coal and power producer DTEK Energy
(DTEKUA) invested UAH 8.4 bln into capital expenditures in 2018, the holding
reported on Feb. 4. It increased investments in coal assets 5% yoy to UAH 4.8
bln and in power generation by about 3% yoy to UAH 1.6 bln, with the larger
goal of increasing internal coal production and converting its power plants
from burning anthracite to hard coal. Other investments amounted to UAH 2.0
bln, including coal machinery assets and power grids (which DTEK Energy spun
off in late 2018). All this amounts to UAH 8.4 bln in total CapEx for the
holding in 2018, which is in line with UAH 8.42 bln spent in 2017.

In other news, Fitch Ratings reported on Feb. 1 that
it has affirmed the rating of its Eurobond at C and its long-term foreign
currency rating at RD, which reflects the fact that some portion of the
holding’s debt (USD 220 mln, or 11% of total) has not been yet restructured.
Once all the debt is restructured, Fitch is going to upgrade DTEK Energy’s
ratings to B-, which is Ukraine’s sovereign level. Fitch determined that the
holding’s debt profile “has a comfortable mid-term maturity schedule.”

Alexander Paraschiy: With DTEK’s
latest ratio of net debt-to-LTM EBITDA being below 2.0x, we believe the
holding’s credit rating deserves to be at sovereign level, and we see little
risk for the holding’s sustainability from its unrestructured debt.

DTEK Energy’s CapEx expenditures are way below the
amount agreed upon with creditors during the debt restructuring in 2016-2017
(e.g. for 2018, CapEx was capped at almost UAH 13.0 bln). Nonetheless, these
careful investments should strengthen the holding’s balance sheet and improve
its chances to restructure, repay or refinance the remaining portion of
unrestructured debt soon. So far, we remain neutral on DTEKUA bonds.