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Rating Action:

Moody's affirms Ørsted's Baa1 rating; stable outlook

20 May 2022

Paris, May 20, 2022 -- Moody's Investors Service ("Moody's") has today affirmed the Baa1 long-term issuer rating of Ørsted A/S (Ørsted). Concurrently, Moody's has also affirmed Ørsted's Baa1 senior unsecured ratings, its baa2 baseline credit assessment, the (P)Baa1 rating of its backed EMTN program, and the Baa3 rating of Orsted's hybrid notes. The outlook remains stable.

RATINGS RATIONALE

The rating affirmation with a stable outlook reflects Moody's view that Ørsted will likely maintain a financial profile commensurate with the current rating at least over the short to medium term.

Underpinned by its position as a global leader in offshore wind, Ørsted's credit profile benefits from scale and an increasingly diversified geographical footprint. The company has an ambitious capital expenditure program which seeks to expand its offshore wind capacity to 30 GW by 2030, up from its current capacity of around 7.5 GW. In addition, Ørsted is increasing its focus on onshore wind and photovoltaics where it aims to increase 2030 capacity to 17.5 GW, up from the current capacity of slightly below 4 GW. The investments will translate into enhanced earnings and Orsted expects to grow its EBITDA with a CAGR of around 12% from 2020-2027.

In order to fund is expansion, Ørsted will make some DKK350 billion of gross investments over the period 2020-2027. It is Orsted's intention to partially fund the investment program through farm-downs of new windparks - resulting in some DKK200 billion of net investments over the period. Nonetheless, the substantial capital expenditure will put pressure on credit metrics over the next two-three years. However, Moody's continues to take comfort in Ørsted's financial policies and its strong commitment to the current rating. In that regard, the rating agency also views positively that at its last general meeting the company received authorization to issue new equity. In the event that Ørsted were to embark upon even larger investment projects, Moody's would expect equity to be part of the funding mix should Ørsted's credit metrics come under pressure for a sustained period of time  The rating agency acknowledges that over the years Ørsted has shown a strong track record in delivering complex construction projects on time and within budget.

Although the offshore wind market has grown more competitive in recent years - notably following the entry of several oil majors - Moody's believes the industry will continue to benefit from favorable dynamics offering growth opportunities for the incumbents as an increasing number of countries focus on renewables as part of their energy mix. However, the rating agency cautions that construction costs may represent an increasing risk factor over the medium term in view of the cost inflation and margin pressure currently seen with certain suppliers.            

More generally, Orsted's Baa1 rating continues to reflect (1) the company's position as the world's leading offshore wind developer with a growing portfolio of operational offshore wind assets; and (2) the significant contribution from long-term contracted cash flows under generally predictable and well-established regulatory regimes, with limited merchant power exposure.

Ørsted's credit quality is, however, constrained by (1) the execution and financing risk associated with development of offshore wind, including in new locations, although Moody's acknowledges the company's solid track record; (2) exposure to greater development and construction risks than its ownership would imply under the partnership model; and (3) limited technology diversification, with offshore wind accounting for the majority of Orsted's installed capacity and earnings. Given 50.1% ownership by the Government of Denmark (Aaa stable), Moody's considers the company to be a government-related issuer.

The Baa1 rating incorporates a one-notch uplift from Orsted's standalone credit quality, expressed as a baseline credit assessment (BCA) of baa2, based on Moody's assessment of moderate support and moderate dependence. Moody's assumption of a moderate support takes account of the government's ownership stake and its supportive stance towards Ørsted's strategy.

RATIONALE FOR STABLE OUTLOOK

The stable outlook reflects our expectation that (1) Ørsted will be able to maintain financial metrics in line with guidance for the current rating, which is to maintain as a minimum, funds from operations (FFO)/net debt above 25%; and (2) the company will continue to manage its portfolio of development projects on time and on budget.

Moody's views income from construction margins and divestment gains as being of a lower quality than Orsted's earnings from other core activities. The rating agency further notes that the volatility of construction related income makes it a less useful  indicator of cash flow generation in the year that it is booked. Accordingly, and in considering Ørsted's performance against ratio guidance, Moody's will look to determine the core income and cash flow generating capacity.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Upward pressure could develop should Ørsted succeed in maintaining FFO/ Net Debt at least in the low 30s per cent on a sustainable basis. At the same time, Moody's would expect no deterioration in Ørsted's business profile.  

Downward pressure on Ørsted's ratings could develop if (1) the company's financial profile deteriorates such that FFO/net debt is likely to fall persistently below guidance for the current rating; or (2) the company's development projects incur significant delays and/ or cost overruns. A reduction in the government support assumption incorporated into Ørsted's rating would also likely result in a downward rating pressure.

The methodologies used in these ratings were Unregulated Utilities and Unregulated Power Companies published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1066389, and Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Ørsted A/S is the world's largest developer and operator of offshore wind, with increasing presence in the onshore wind segment. Its largest shareholder is the Government of Denmark, which holds 50.1% of the company's shares.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating.  For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of  the guarantor entity.  Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Knut Slatten
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris, 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Andrew Blease
Associate Managing Director
Infrastructure Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris, 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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