Fortum Oyj

The negative outlook on Fortum chiefly reflects our view that, following its acquisition of a stake of 47.35% in Uniper for around €3.8 billion, the possible remedies to strengthen the balance sheet remain untested and the time to implement them might extend beyond our forecast horizon through 2020, resulting in credit metrics we deem not commensurate for the current rating. All things remaining equal, our forecasts indicate that Fortum's credit metrics will be below our medium- to longer-term expectations for the 'BBB' rating, including adjusted funds from operations (FFO) to debt well below 25% over 2018-2019. This also means that Fortum has practically no headroom for any financial underperformance against our forecasts. The negative outlook also reflects the uncertainty regarding

...Fortum is a large and clean power player in the Nordics and Russia. Fortum is the third-largest power generator in the Nordic countries after Vattenfall and Statkraft and the largest electricity retailer. Fortum is the second-lowest emitting generators in Europe (after Statkraft) thanks to its zero-to-low CO2 emission fleet. The acquisition of Uniper in 2018 materially changed the group's credit profile.Following the 3.8 billion acquisition of 47.35% of the share capital of Uniper SE, closed in June 2018, Fortum's adjusted debt to EBITDA is expected to increase to about 3.5x in 2018 from 1.6x in 2017. Moreover, given the current stake in Uniper, Fortum lacks control and still has an unclear strategy on Uniper's integration. The path to debt reduction is long and still uncertain. Fortum aims to reach 2.5x reported net debt to EBITDA by 2020. The deleveraging strategy focuses on operational excellence, optimization of the generation portfolio as well as prioritization of capital spending...

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