Fitch affirms DTEK Energy at 'restricted default'
Fitch Ratings has affirmed Ukraine-based DTEK Energy B.V.'s (DTEK) Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'RD' (Restricted Default), the agency said on its website.
"We have also affirmed DTEK's U.S. dollar eurobond senior unsecured rating at 'C' with a Recovery Rating of 'RR5'," it said.
"DTEK's Fitch-calculated debt at end-2020 was about $ 2.3 billion (UAH 65 billion), of which about $ 2 billion (UAH 57 billion) falls under restructuring. DTEK plans to finalist the restructuring by end-April 2021. The affirmation reflects DTEK's continued negotiation with lenders on restructuring the company's existing debt. Once completed, Fitch will re-rate the company based on the new capital structure while considering its business risk," according to the document.
"At end-2020 DTEK accumulated cash of UAH 1.6 billion ($ 57 million), a moderate improvement from UAH 1.2 billion ($ 41 million) at end-1Q20. This reflected the absence of the majority of interest and debt amortization payments in 2020 due to commenced financial restructuring and some improvement in electricity generation volumes in 4Q20 mainly on the back of cold weather conditions. We expect DTEK's liquidity to improve post-restructuring due to small expected debt amortizations in 2021-2024, lower interest rates on new debt and some improvement in operational performance," Fitch said.
"We expect DTEK's financial performance to have deteriorated in 2020 on the back of about 15% y-o-y decrease in both electricity volumes and prices. We take a cautious view on 2021 and expect EBITDA to be little changed from 2020 levels. This is due to only marginal improvement in electricity volumes driven by expected 3.5% growth in Ukrainian GDP and some recovery in electricity prices. The latter may be affected by existing price caps and the resumption of cheap imports of electricity from Belarus and Russia in early 2021. Our expectation of higher costs on coal imports in 2021 will also constrain financial performance," the experts noted.
"DTEK is exposed to FX fluctuations as almost all of its debt at end-2020 was foreign currency-denominated (mainly U.S. dollars and euros), while almost all of its revenue is denominated in hryvnas. DTEK does not use any hedging instruments. We do not expect FX risks to decrease following the proposed restructuring as new debt will be issued in U.S. dollars. This may weaken DTEK's credit metrics in case of hryvnia depreciation," the report says.
"DTEK has a more challenging operating environment affecting its business profile compared with peers, including an evolving regulatory framework, policy instability and possible macroeconomic shocks in Ukraine. DTEK also has a weaker financial profile than most of its peers due to higher leverage and debt exposure to FX. DTEK's ratings do not incorporate any parental support from ultimate majority shareholder System Capital Management," it says.