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11 May 2004
MOODY'S AFFIRMS FORTUM'S Baa1 RATING FOLLOWING HAFSLUND ACQUISITION ANNOUNCEMENT
London, 11 May 2004 -- Moody's Investors Service today affirmed the Baa1 senior unsecured
long-term rating of Fortum Oyj with stable outlook following the
company's announcement that it has agreed to acquire a further 53.7%
of shares in Norwegian power company Hafslund for EUR660 million.
The acquisition has been approved by the Oslo City Board, which
has recommended it to Oslo City Council for approval. Assuming
this approval is obtained and there are no higher offers received by early
July, the transaction is expected to close during the summer.
In addition Fortum will assume net debt in the region of EUR1.4
billion and may acquire the remaining minority stakes valued at around
In Moody's view, this acquisition is in line with Fortum's
strategy to enhance its business position in the Nordic sector and will
increase its exposure to more stable distribution cash flows in Norway,
(distribution currently contributes around 35% of EBITDA),
as well as improving its position in supply and generation, making
it the dominant Nordic player in distribution and supply and the number
two in generation (after Vattenfall).
However, the acquisition does represent a substantial increase in
debt for the Fortum group, given the acquisition debt, the
existing high leverage and the relatively small cash flows at Hafslund
(in relation to those of Fortum itself). The rating agency regards
the acquisition as effectively absorbing Fortum's financial flexibility
at this rating level with the current credit profile.
Moody's rating assumes that -- if the acquisition is successful
-- the company will look to integrate Hafslund in a rapid fashion,
extract synergies, put in place additional funding facilities to
preserve its sound liquidity position and refinance subsidiary debt as
appropriate at the parent company level. The rating also reflects
Fortum's recent sound track record with regard to streamlining the
group including solid progress with regard to the integration, synergy
extraction and improvement in the group's capital structure following
the Birka Energi acquisition.
Moody's also believes that the company will pursue its objective
to spin off its oil and gas business, which is planned for later
in 2004, although timing may be delayed by market conditions.
This should serve to reduce the company's exposure to this higher-risk
business segment, although the company will lose the benefit of
its consolidated cash flows. The company intends that this transaction
should be undertaken in a credit neutral way; Moody's will
continue to monitor and assess the implications for the credit rating,
if and when, the transaction transpires and more details becomes
Although Moody's is maintaining the stable rating outlook,
it cautioned that there are a number of risks that could potentially be
adverse rating factors. Specifically, the company's
lack of success in achieving any or a combination of the following could
prove negative for the rating if they result in a failure to reduce anticipated
net debt from levels of around EUR7.5 billion following the transaction
(gearing is estimated to reach 113%, above the company's
100% target) or otherwise increase the business or financial risk:
(i) integrating and achieving synergies from Hafslund; (ii) maintaining
a solid operating cash flow performance; (iii) further debt funded
acquisitions of any size.
Moody's does not expect any upward pressure on the rating in the
medium term, unless the business and financial risk profile improves
materially and event risk relating to further acquisitions is significantly
Headquartered in Espoo, Finland, Fortum Oyj is a leading energy
company in the Nordic countries and the other parts of the Baltic Rim.
For the 12 months ending 31 March 2004, Fortum's net sales
totalled EUR10.6 billion.
Headquartered in Oslo, Norway, Hafslund is the largest power
company in Norway in terms of electricity distribution and sales with
540,000 electricity distribution customer connections and 614,000
retail customers. Hafslund also has 9 hydroelectric generation
stations, which produce a total of 2.9 TWh in a normal year.
For the 12 months ending 31 March 2004, Hafslund had sales of NOK8.1
billion and operating profit of NOK727 million.
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
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Vice President - Senior Analyst
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
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