The ratings of Fortum Oyj are under review for possible downgrades by major credit rating agencies, after the Finnish utility decided to increase its stake in Uniper SE.
Fortum announced Oct. 8 plans to acquire a further 20.5% interest in the German power producer from Elliott Management Corp., Knight Vinke Asset Management LLC and their affiliates for €2.3 billion to "create a leader in the European energy transition."
S&P Global Ratings said the transaction weakens Fortum's business risk profile "to some degree" and delays its deleveraging. "The CreditWatch placement for Fortum reflects the significant likelihood of a one-notch downgrade once the deal closes, although the degree of downside risk will depend on possible remedy measures and market conditions," the rating agency said in an Oct. 9 research note.
S&P Global Ratings also placed the ratings of Uniper on CreditWatch negative in view of its link with Fortum upon closing of the transaction. Both Fortum and Uniper have long-term BBB ratings.
On the same day, Fitch Ratings also announced that it is placing Fortum's BBB long-term issuer default rating and senior unsecured rating, and F2 short-term issuer default rating on Rating Watch Negative.
Like S&P Global Ratings, Fitch anticipates increased risk for Fortum when it gains control of Uniper. Fitch cited Uniper's exposure to increasing carbon dioxide prices and its volatile gas midstream and commodity trading business.
"We believe that the group has some potential to generate structurally neutral to positive free cash flow. However, the updated financial policy and target leverage of the larger group will be key in defining the rating," Fitch said.
Moody's also weighed in on the proposed transaction, saying the deal would increase Fortum's debt burden. However, Moody's acknowledged that it could reduce uncertainties associated with the current shareholder structure and unlock potential for operational and financial synergies.
But in placing Fortum's Baa2 issuer and senior unsecured ratings on review for downgrade, Moody's said it reflects the risks and the deal impact on the company's credit quality absent measures to bolster its balance sheet strength.
"Moody's will seek to conclude the ratings review as soon as possible, once there is more clarity around the risks to execution and any potential measures that Fortum may take to mitigate the impact of the Uniper acquisition on its business and financial risk profile," the rating agency said.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.
