Fitch upgrades DTEK Energy to B-/Stable

Fitch Ratings has upgraded the issuer default rating
of coal and power holding DTEK Energy (DTEKUA) to B- with a Stable outlook, the
rating agency reported on Nov. 27. It also upgraded the company’s Eurobond
rating to B- from C. The upgrade reflects DTEK’s “improved financial
flexibility following the successful restructuring of the
company’s debt,” Fitch commented. Following the restructuring of the last debt
of USD 245 mln, the company will convert it to bonds and loans on the
conditions agreed upon with other creditors. As a part of the deal, DTEK will
have to pay about USD 76 mln to restructured lenders in the last two months of
2019, Fitch reported.

Fitch mentioned limited long-term liquidity as a key
weakness of DTEK Energy, estimating the company will have to refinance most of
2021-2023 maturities. The holding is scheduled to repay USD 20 mln of debt
annually in 2021-2022 and USD 1,104 mln in 2023, according to the company’s
1H19 presentation.

Alexander Paraschiy: The upgrade
is an expected event following DTEK’s announcement on the finalization of its debt restructuring on Nov. 18.
The company’s rating is one notch below the sovereign level (B/Positive from Fitch), which is
explained by its tough debt repayment schedule in 2023-2024 that implies
refinancing needs. We expect DTEK Energy will try to smoothen its debt
repayment schedule with refinancing in the coming two years, as related company
Metinvest did in October.

DTEK Energy’s rating is also below the level of its
former subsidiary DTEK Renewables (DTEREN, B rating with a Stable outlook from
Fitch), which reflects the coal and power holding’s higher foreign exchange
risk. However, taking into account the relative stability of the Ukrainian
currency, we do not believe such risk is very important now. All in all, we
remain bullish on DTEKUA bonds.