DTEK preannounces Eurobond restructuring talks in 1Q16

Ukraine’s leading utility holding DTEK (DTEKUA) announced via an exchange notice it is going to offer a restructuring proposal in 1Q16 for its USD 750 mln Eurobond maturing in April 2018. The holding urged its bondholders to form an ad hoc committee and appoint a financial advisor.

Earlier this year, DTEK was able to restructure its USD 200 mln Eurobond, due in April, with a USD 40 mln down payment and rescheduling the remaining repayment in two USD 80 mln tranches in September 2017 and March 2018.

Alexander Paraschiy: As more than two years remain until the maturity of the USD 750 mln Eurobond, and a lot of things can change by that time, it looks too early to start any restructuring negotiations. The early attempt to restructure the bond might be dictated by the holders of DTEK’s other debt, which might want all the debt to be restructured. Alternatively, such talks could have been initiated by DTEK itself, with the aim of postponing and/or capitalizing the coupon payments under the bond. In an environment of poor payment discipline on Ukraine’s energy markets, as well as difficulties that DTEK faces in the occupied regions of Donbas (where a lot of its mining assets are located), DTEK is likely to face trouble with working capital financing. In such circumstances, DTEK might face a risk to not having enough cash to smoothly pay the coupons on the bond, worth USD 59 mln in the next year.

As we highlighted before, DTEK’s key current challenge is the low rates for electricity produced by its power plants, which affect the holding’s core business of coal mining and electricity production from this coal. The rates are limited by the power sector regulator. We still expect the company will be able to lobby for an increase in the rates and improve its operating profit in the next year.