DTEK aims to restructure most of its debt by October

Обзоры по компаниям и отраслям 03.06.2015 Ukraine’s leading energy and utility holding DTEK (DTEKUA) will work to reach an agreement with banks to delay payment of most of its USD 3 bln in debt, Reuters reported on June 2, citing CEO Maxim Timchenko. The vast majority of DTEK’s debt is owned by international banks, including ING, UniCredit, Erste Bank and Raiffeisen Bank, Timchenko said, adding that the current situation in Ukraine does not allow for DTEK to service its debt smoothly. According to DTEK’s annual report, its total debt was USD 3.04 bln as of end-2014, out of which 42% were loans in EUR and USD, 30% were Eurobonds and 19% were loans in Russian currency. Offering an illustration of the holding’s difficulties in Ukraine, DTEK’s press service reported on June 2 that a Kyiv district court has blocked the accounts of DTEK’s natural gas production company NGD, the biggest private miner of gas in Ukraine. The hearing on the complaint filed by the Prosecutor General’s Office took place on the evening of Friday, May 29, after working hours, the press service said. The hearing was led by judge Svitlana Volkova, who is facing criminal charges for her decision to free Dmytro Sadovnyk, a special forces officer suspected in commanding the shooting of EuroMaidan protesters in Kyiv in February 2014. Her arguments were based reasoning that has been already invalidated by the Kyiv Court of Appeals, DTEK alleged. Alexander Paraschiy: The news on restructuring talks is not a big surprise, given that DTEK was in technical default on almost half of its banking debt (USD 1.0 bln), as of end-2014. The restructuring attempt will also involve the holders of the USD 750 mln Eurobond of DTEK maturing in April 2018, we believe. Firstly, this amount is not affordable for DTEK to repay; secondly, it would be fair that all the debtors of DTEK are treated pari passu (recall, the holding restructured its 2015 bonds a couple of weeks before); and thirdly, banking lenders are likely to insist that bondholders should also be involved in the restructuring. We believe the holding has a good chance to restructure its liabilities successfully, on conditions that would satisfy creditors. Of course, the terms of restructuring, which depend on DTEK’s ability to service its debt, will depend also on the political situation in Ukraine, namely, on relationships between Ukraine’s government leaders and DTEK’s owner, Rinat Akhmetov. It loks as though DTEK has become a victim of the president’s “deoligarchization” policy, which, in our view, has taken a vulgar form and is potentially dangerous for the country’s investment climate. In their campaign to “fight the oligarchs,” state officials have attacked their business, which includes transparent companies that have foreign stakeholders. Instead, they should be focusing on establishing rule of law in reforming the broken judicial system and establishing a level playing field for all business, while attacking those businesses that earn directly from their corrupt links to state institutions. Currently, DTEK’s biggest problem is artificially capped rates for electricity produced by its power plants. The holding was unable to persuade the government to revise the caps, but the situation should change to DTEK’s benefit closer to the start of the heating season in mid-autumn, when the contribution of DTEK’s power plants will be critical for the stability of Ukraine’s energy system.