Power Engineering - More Nordic power utility consolidation predicts S & P report

28 October 2004 - Further acquisitions are expected by all four of the Nordic integrated electric utilities featured in a new peer comparison report published by Standard & Poor's Ratings Services.

The article compares Sweden-based Sydkraft AB (A/Stable/A-1), Denmark-based Elsam A/S (A-/Stable/A-2), Finland-based Fortum Oyj (BBB+/Stable/A-2), and Norway-based Statkraft SF (BBB+/Stable/A-2).

The power industry in the Nordic region is characterized by its liberalized markets, recent high spot prices, and relatively stable and favourable regulation for monopoly electricity distribution and heating. With the exception of Fortum, over the past 12 months the credit quality of all the companies reviewed has been negatively affected, either by major debt-financed acquisitions (with Sydkraft acquiring Graninge AB (A/Stable/A-1) and Elsam acquiring NESA) or by increased uncertainty regarding financial policy (the dividend and equity infusion policies of Statkraft).

"We expect further debt-financed growth for all four companies, and this is reflected in the ratings," said Standard & Poor's credit analyst Magnus Pettersson. No immediate ratings changes are anticipated, however, as evidenced by the stable outlook on all the companies.

Sydkraft has the highest credit ratings of the group. The company benefits from a strong business profile with a competitive generation portfolio, and well-diversified and integrated operations. Sydkraft also has the strongest financial profile. Its earnings are largely stable due to substantial electricity distribution and district heating operations, and it benefits from strong financial flexibility, backed by its owner E.ON AG (AA-/Stable/A-1+).

Elsam has the second-highest credit ratings. Although its business profile is the weakest of the peer group, this is balanced by its strong financial profile, which is the second-strongest. Furthermore, the company has the strongest debt protection measures and the lowest debt leverage of the four companies. Earnings can, however, be subject to variation.

Fortum and Statkraft have the same credit ratings. Fortum's business profile is expected to improve after the likely demerger of its higher-risk oil operations, planned for the spring 2005. Following this, its business profile will rank just ahead of Sydkraft's. Fortum's financial profile ranks third in the group. The company is expected to exploit the headroom under the current ratings resulting from the demerger.

Despite being focused on generation, Statkraft has the strongest business profile of the four companies. This is due to its highly competitive and diversified hydro generation portfolio. It also benefits from expected indirect support from its owner, the Norwegian government. Statkraft's financial profile is the weakest of the group, however, despite improving slightly in recent years.

The article, entitled "Peer Comparison: Four Nordic Integrated Utilities," was published on Oct. 26, 2004, and is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com.

Add RSS Feed