S&P places DTEK Renewables rating on CreditWatch negative

S&P Global Ratings placed on June 26 the B- rating
of DTEK Renewables (DTEREN) on its CreditWatch with Negative implications, the
agency reported the same day. The key driver of the move is the worsened
payment discipline of the state-run guaranteed buyer of renewable electricity.
DTEK Renewables only received 18% of its cash payments from the guaranteed
buyer for March as of June 26, S&P reported (before March, the company
enjoyed 100% payments). The rating agency warns that the company’s liquidity
could come under more pressure if payments for green energy won’t resume by
end-August.

As of June, its cash reserves were about EUR 15 mln,
excluding EUR 130 mln of its remaining green bond proceeds and EUR 50 mln of its
debt servicing and debt servicing reserve accounts, which represent restricted
cash for bank debt and coupon payments, S&P wrote. It estimated the
company’s monthly cash needs at about EUR 25 mln. S&P also writes that the
green bond proceeds “are technically not restricted and the company could use
them for general corporate purposes without any financial penalties, but would
lose its green certificate”.

As part of solving its payment issues, renewable
energy companies signed a memorandum with the government on June 10, based on
which payments will resume in full after green tariffs are corrected downward
by 7.5% (for existing wind farms) and 15% (for existing solar stations). Also,
the accumulated arrears will be repaid by the end of 2021 (including 40% by the
end of 2020). The respective law draft has been prepared by the government,
stipulating adjusting tariffs will be implemented since 2H20.

According to S&P’s understanding, DTEK Renewables’
planned growth projects have been on hold since March. Based on its initial
plan presented in 2019, DTEK Renewables was planning to double its generating
capacity (from 950 MW as of end-2019) by commissioning three solar power
stations in 2020-2021 and one wind farm in 2021-2022.

Recall, due to the same payment issue, Fitch Rating
also placed DTEREN rating under Rating Watch Negative, also
downgrading it to B- from B on June 12.

Alexander Paraschiy: While
worsened payment discipline from the buyer of green energy is indeed an
important issue, we see not many signs to worry. First, the company’s average
monthly cash needs to cover all the expenses (including debt service) is less
based on our estimates (EUR 15 mln per month). Second, besides cash and deposits
on restricted accounts, the company had over EUR 220 mln in short-term lending
provided to related parties as of end-2019, whose partial recovery could serve
as important liquidity support during tough times (that is, of course, if such
lending is truly short term). That said, DTEK Renewables’ liquidity depends
more on the ability of related parties to return their loans to the company.