DTEK Energy may deleverage by recovering early related lending

DTEK Oil & Gas, a related company to DTEK Energy
(DTEKUA), could issue a bond aimed to repay early an intercompany loan provided
by DTEK Energy, Debtwire news agency reported on Jan. 14, citing its sources.
If that happens, DTEK Energy will use all the proceeds from the loan’s recovery
to partially redeem its USD 1.34 bln Eurobond, as has been stipulated in the
bond’s documentation.

The book value of DTEK Energy’s loan to DTEK Oil &
Gas amounted to USD 465 mln as of end-June 2019, according to its interim
report. This loan emerged as a result of a spin off of DTEK Oil & Gas from
DTEK Energy in 2015. The loan matures in 2023 and 2024.

Alexander Paraschiy: So far, it
is hard to determine whether the energy holding is seriously considering such
an option. But it indeed makes sense for the holding to attract an external
loan on DTEK Oil & Gas (which is likely to have low leverage) and use the
proceeds to partially deleverage DTEK Energy.

If that happens, DTEK Energy’s gross debt could
decrease from about USD 2.0 bln to USD 1.5 bln, and its net debt to EBITDA
ratio could drop from its expected end-2019 level of 3.0x to 2.3x. The reduced
leverage should lower DTEK Energy’s risks and make it more capable of
refinancing its existing expensive debt (recall, the current Eurobond has a
10.25% coupon rate). Keeping in mind this possible move of DTEK holding, we
remain neutral on DTEKUA bonds.