S&P places DTEK Renewables rating on CreditWatch negative

30 June 2020

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.

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