Fitch Affirms DTEK at ‘B’; Outlook Negative

Fitch Ratings-London/Moscow-6 November 2009: Fitch Ratings has today affirmed DTEK Holdings Limited's (DTEK) Long-term foreign currency Issuer Default rating (IDR) at 'B' with a Negative Outlook.

DTEK’s other ratings are affirmed as follows:
Short-term foreign currency IDR: ‘B’
Long-term local currency IDR: ‘B+’; Outlook Negative
Short-term local currency IDR: ‘B’
National Long-term rating: ‘AA+(ukr)’; Outlook Stable
National Long-term senior unsecured rating: ‘AA+(ukr)’

The company’s Long-term foreign currency IDR is constrained by Ukraine’s sovereign rating (‘B’/Outlook Negative) and by its country ceiling (‘B’). The latter reflects the currency transfer and convertibility risk that would arise in the event of a currency crisis in Ukraine, which would be exacerbated in DTEK’s case by a debt structure that is almost entirely denominated in dollars and euros, despite its predominantly hryvnia revenue.

DTEK’s Long-term local currency IDR and National Long-term rating are rated one-notch above the equivalent sovereign ratings, and reflect the company’s vertically integrated, comparatively stable business, and position as the most efficient thermal power generator in Ukraine.

The company’s refinancing risk remains high, as liquidity resources only cover short-debt maturities 0.4x as of October 2009. However, one mitigating factor to refinancing risk is the company’s demonstrated ability to rollover short-term maturities with its relationship banks throughout the current financial crisis.

DTEK’s net leverage, at 1.0x in 2008, is likely to reach a medium-term peak of 1.5x in 2009. Discretionary capex has been cut by the company in 2009. If DTEK expands capex and undertakes acquisitions before revenue grows significantly and margins regain their pre-financial crisis levels, net leverage could increase above 1.5x on a sustained basis in the medium-term. In the absence of an improvement in the company’s capital structure, this would create pressure for a downgrade.