Fitch downgrades DTEK Renewables rating to B- with Negative rating watch

Fitch Ratings has downgraded the Long-Term
Foreign-Currency Issuer Default Rating (IDR) of DTEK Renewables (DTEREN) to B- from B
and placed it on its Rating Watch Negative, the agency reported on June 12. The
downgrade reflected payments delay to green energy producers by the state buyer
since March, as well as an expected decline of green tariffs. Settlements with
renewable energy producers varied from 5% to 11% monthly
during March-May 2020, and payables of DTEK Renewables reached EUR 61 mln as of
May 29, as reported by the company.

Fitch also reported that a new memorandum has been reached
between the Ukrainian government and green energy producers, which foresees
cutting green tariffs by 7.5% for wind farms and 15% for solar farms. At the
same time, Fitch forecasts an even higher reduction in green tariffs by 10% and
20%, adding that the decrease foreseen by the memorandum “would be an upside”
that would allow Fitch to affirm a Stable Outlook for DTEK Renewables’ rating.
In its forecasts, Fitch also assumes DTEK Renewables will reduce the volume of
its new green capacities to 220 MW in 2020-2021, from 565 MW initially planned.
At the end of 2019, the company had 950 MW of installed capacity.

Alexander Paraschiy: With the recent downgrade, Fitch brought its rating for DTEK
Renewables in line with S&P’s rating (B-, Stable outlook), which is one
notch below the sovereign rating. In our view, such a rating fairly reflects
the risks of green energy projects in Ukraine. Providing that payment
discipline on the energy market improves and DTEK Renewables won’t lend to
related parties in 2020, there is little threat to the company’s financial
stability and its ability to service debt. With the company’s 2020 EBITDA
likely to be between EUR 175 mln and EUR 210 mln, its end-2020 gross leverage
would be between 3.2x and 3.8x, which looks affordable for the company.