S&P Global Ratings places Fortum’s BBB long-term rating on negative watch – Eurasia Review

S&P Global Ratings (S&P) on Monday placed the BBB long-term ratings of Fortum and its subsidiary Uniper on CreditWatch Negative. Since 2018, Fortum and Uniper have been rated BBB investment grade by S&P.

The underlying reasons for the CreditWatch Negative are the severe geopolitical tensions and uncertainty following Russia’s attack on Ukraine and the risk of possible gas supply cuts from Russia. Uniper’s midstream gas business includes a portfolio of around 370 TWh of long-term gas supply contracts, around half of which comes from Russia.

According to S&P, given the size of Uniper’s gas trading operations, the possible exposure to market prices in a drawdown situation is difficult to quantify due to extremely volatile gas prices and unknowns regarding intervention. government’s potential to mitigate these risks. However, according to Fortum and Uniper, in the event of major interruptions of Russian gas flows to Germany, a state of emergency within the German legal framework would be triggered. In such a case, the German regulator Federal Network Agency (BNetzA) would intervene as an emergency demand management authority, in coordination and under the supervision of the EU authorities. In such scenarios, we would expect Uniper to be relieved of the obligation to source volumes of surrogate gas from the market.

Additionally, S&P believes Fortum will not be able to transfer profits outside of Russia. While in the short term this is the situation, it is unclear how this will evolve in the future. On the other hand, S&P notes the good operational and financial performance of the Fortum group in 2021, strongly supported by high commodity prices, which could mitigate a sudden stop in the contribution of Russian operations, at least in the short term. In 2021, the Group’s Russian activities corresponded to approximately 20% of Fortum’s comparable operating income.

The rating agency also views Fortum’s consolidated liquidity as “adequate” (previously: “strong”) while noting that Fortum continues to have access to capital markets and good relationships with its partner banks.

S&P aims to resolve CreditWatch in the coming months, depending on market developments and geopolitical conditions.

Fortum’s main objective is to have a solid investment rating of at least BBB in order to preserve financial flexibility and good access to capital markets. The Fortum Group currently has access to nearly €6 billion of undrawn short-term revolving credit facilities. At the end of 2021, Fortum’s net financial debt to comparable EBITDA ratio was 0.2x, significantly below the target level of