Fortum Oyj

The negative outlook on Fortum chiefly reflects our view that, following its acquisition of a 49.99% stake in Uniper (total acquisition cost €3,968 million), possible remedies to strengthen the balance sheet remain unclear and the time to implement them might extend beyond our forecast horizon, resulting in credit metrics we deem incommensurate with the current rating. All things remaining equal, our forecasts indicate that Fortum's credit ratios will be below our medium- to longer-term expectations for the 'BBB' rating, including S&P Global Ratings-adjusted funds from operations (FFO) to debt at about 25% in 2019. This also means that Fortum has practically no headroom for any financial underperformance against our forecasts. The negative outlook also reflects the lack of clarity about

...Fortum is a large and clean power player in the Nordics and Russia. It is the third-largest power generator in the Nordic countries after Vattenfall and Statkraft and the largest electricity retailer. It is the second-lowest-emitting generator in Europe (after Statkraft) thanks to its zero-to-low CO2 emission fleet. We note that 59% of Fortum's 2018 generation mix was CO2-free, from nuclear (30%), hydro (26%), and renewables (3%). Natural gas represented 38% and coal 3%. The acquisition of Uniper in 2018 materially weakened the group's credit profile. Following the 3,968 million acquisition of 49.99% of the share capital of Uniper SE, Fortum's S&P Global Ratings-adjusted debt to EBITDA increased materially, to about 4.3x in 2018 from 1.8x in 2017. Moreover, Fortum does not have a controlling stake over Uniper, and still has an unclear strategy for Uniper's integration. The path to debt reduction is long and remains uncertain.Fortum aims to reach 2.5x reported net debt to EBITDA by 2020....

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