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.