DTEK gets court approval to restructure its 2015 Eurobond

Ukraine’s leading energy holding DTEK (DTEKUA) reported on April 27 that it has received approval of the High Court of Justice of England and Wales for its “scheme”, or the program of forced exchange of Eurobond maruting on April 28. Now DTEK will exchange the notes (USD 175.5 mln held by external holders) into a set of cash (20%) and new notes (80%). The holding reported on April 1 that the new notes will be repaid in two equal instalments, in September 2017, and March 2018. Their coupon rate will be 10.375% (vs. 9.50% for the old notes). The holders which agreed on the exchange before the early exchange deadline of April 13 (the holders of about USD 158 mln notes) will receive 3% in an early instruction fee.

Alexander Paraschiy: With the court ruling, DTEK has completed all the necessary bureaucratic procedures to force all the holders to exchange. The internal rate of return to maturity that bondholders will receive following the exchange (assuming they voted in its favor, and given the price of old bond is 71.8% of par) would be 37%. This is bigger than the YTM of comparable government bonds and the IRR of Ukreximbank’s 2015 notes, as can be derived based on its offered restructuring terms. We expect DTEK‘s new notes to start trading at 60%-62% of par.

After rescheduling the 2015 notes, DTEK will repay about USD 70 mln of the new notes in March 2018, just ahead of the maturity date of its other Eurobond (USD 750 mln maturing in April 2018). Given DTEK’s increased repayment burden for March-April 2018, the holders of the USD 750 mln Eurobond should now worry about the holding’s ability to make its timely repayments. Now it is clear that DTEK will have to refinance this bond, or re-profile it.

That said, we see that DTEK’s April 2018 Eurobond should be traded with a tangible positive spread to its new March 2018 Eurobond.