Economy | Fortum’s balance in recent years: this is how a stable dividend machine turned into a German risk

In recent years, Fortum has sold its stable operations for more than 16 billion euros. However, the billions dwindled into a German venture company and a generous dividend payment.

Energy company Fortum and the German government agreed on Friday from the rescue package of the gas company Uniper. Uniper stays afloat with the help of the package, but from Fortum’s point of view, the end result is harsh. With the arrangement, the German state becomes Uniper’s significant owner and largest creditor.

After the announcement of the support package, Uniper’s share price ended up falling by almost 30 percent on Friday.

Fortum has bought Uniper shares in recent years for around seven billion euros. At Friday’s closing price, the value of the Uniper shares owned by Fortum is only about two billion euros.

The value of Uniper shares is therefore only a fraction of what it was before. However, the impact of the Uniper acquisition on Fortum is wider than this. In recent years, Fortum has focused almost entirely on Uniper and as a result has sold a significant part of its old, stable operations.

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Fortum received the funds to acquire Uniper in 2014–2015, when it sold the electricity transmission operations in Finland, Sweden and Norway. Fortum received a total of approximately 9.5 billion euros from the sales of electricity networks.

However, Fortum’s corporate sales did not end there.

According to HS’s calculations, between 2014 and 2021, Fortum sold its holdings for a total of more than 16 billion euros. After electricity networks, the largest individual sales were district heating operations in Finland, Sweden and the Baltics. In addition, the company sold, among other things, solar power in India and its wind power plants in the Nordic countries.

For example last summer Fortum sold a 50 percent stake in Stockholm’s district heating company Stockholm Energi. The purchase price was high, 2.9 billion euros. Baltic district heating was sold for 710 million euros, Joensuu district heating for 530 million and Järvenpää district heating for 375 million euros.

District heating is a stable and low-risk business, especially if you compare it to Uniper’s gas trade and its geopolitical risks.

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According to Fortum, the holdings sold in recent years “were not part of its core business activities”. At least as big a reason behind the company sales has been Fortum’s indebtedness.

In recent years, Fortum has emphasized how important it is for it to maintain its credit rating at least at the current level.

Credit rating agencies evaluate companies’ debt management capacity. If Fortum’s credit rating had dropped to the junk loan category, it would have made Fortum’s operations and obtaining financing significantly more difficult.

“Fortum has shown a strong commitment to maintain the current credit rating,” credit rating agency S&P stated in summer 2021, and referred to more than five billion euros worth of business sales over the past few years.

Fortum’s the debt has remained higher than the company’s own target despite large corporate sales. The main reason for the high debt level has been Uniper. Uniper’s debts of billions of euros also increased parent company Fortum’s debt burden.

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“Indebtedness still requires measures”, analysis company Inderes stated in the summer of 2021, and predicts that Fortum’s business sales will continue.

Next on Fortum’s sales list were electricity retail sales, i.e. the Consumer Solutions unit and Polish district heating operations. The plans changed at the end of February, when Russia invaded Ukraine, and Fortum put the sales plans on hold.

Although Fortum has been balancing its large debt burden, it has continued to pay generous dividends. Fortum has distributed dividends to its owners of approximately one billion euros per year. Fortum’s general meeting decided to continue the dividend payment also at the general meeting held in March 2022, despite the fact that Russia had attacked Ukraine a month earlier and Uniper’s risks had increased considerably.

The Finnish state owns 51 percent of Fortum, which means that the state has received approximately EUR 500 million in dividend income from Fortum each year.

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