Operating performance in line with Scope’s rating case. With an EBITDA of EUR 1.4bn for the first nine months of 2017 (vs EUR 1.8bn for 9M 2016), Uniper’s operating performance is in line with Scope’s expectations. The rating case conservatively incorporates an EBITDA of EUR 1.6bn-1.7bn for the full year 2017.

Comfortable leverage by YE 2017. Scope expects Uniper to achieve its leverage target of well below 2.0x by YE 2017 (using the company’s definition of economic net debt/EBITDA). The envisaged disposal of the 25% stake in Russian gas field Yuzhno Russkoye (for which Uniper has all regulatory permits) and the strong free cash flows expected for the fourth quarter are expected to significantly reduce economic net debt, from around EUR 4bn as at Q3 2017 to around - EUR 2bn at YE 2017. From Scope’s perspective, this gives Uniper comfortable headroom for further investments and the announced dividend growth, but without threatening leverage, which is currently commensurate with Scope’s BBB+ issuer rating.

Stabilising business trends beyond 2017. While Scope expects Uniper’s cash flows (EBITDA contribution) will decrease in 2018 – due to lower hedged power prices for outright electricity volumes in Germany and Sweden as well as the lapse of EBITDA from the disposal of gas exploration activities – it highlights that commodity prices are rising for electricity and gas, as well as for CO2 certificates under the European Emission Trading Scheme. Moreover, the company’s gradual structural change to increase its share of earnings from regulated and quasi-regulated activities is credit-positive.

No immediate rating impact from Fortum deal. Fortum Deutschland SE, a subsidiary of Finnish Fortum Oyj (not rated by Scope), has agreed with E.ON SE (not rated by Scope) to acquire 46.65% of Uniper, for a consideration of EUR 21.31 per Uniper share plus a compensation of EUR 0.69 for the dividend payment for the financial year ending 31 December 2017 (total consideration of EUR 3.76bn). To this end, Fortum has made a voluntary public takeover offer to all Uniper shareholders including E.ON to tender their Uniper shares. The acceptance period runs from 7 November 2017 to 16 January 2018, considering potential extensions the offer may run until early February 2018. Moreover, Fortum and E.ON have agreed on a breakup clause, under which: i) Fortum can sell to E.ON any Uniper shares acquired in connection with the offer and ii) E.ON must compensate Fortum at least 20% of the total equity value of E.ON’s stake in Uniper if E.ON does not tender. Scope estimates that Uniper’s share price would have to increase by more than 25% to the current share price (EUR 23.74 as of 9 November 2017) to discourage E.ON from the tender.

The outcome of the tender still remains uncertain in some aspects:

• Whether Fortum will be able to acquire the majority share beyond the stake from E.ON, given the share price in October and early November continuously traded at a premium of around 10% to the offered transaction price.
• Whether Fortum intends to acquire a majority share or wants to keep Uniper as a financial asset and dividend provider to the Fortum group. Scope regards the latter to be the valid option currently, given Fortum’s repeated unwillingness to increase its offer above EUR 22 per Uniper share and its confirmation during the last investor calls that the transaction should be considered a ‘friendly’ bid.
• Whether Fortum would have to conduct larger capital increase to maintain its solid financial risk profile. Scope presumes that Fortum would have to adjust its leverage target of a net debt/EBITDA of below 2.5x (which could affect its rating) if it acquires significantly more of Uniper’s shares than the stake from E.ON without a significant capital increase.

Scope will likely review the impact of a new shareholder structure once there is sufficient transparency on the tender’s outcome after the acceptance period ends in January 2018.

This publication does not constitute a credit rating action. For the official credit rating action release click here. On 13 June 2017, Scope assigned the issuer rating of BBB+ for Uniper SE. Senior unsecured debt issued by the company is rated BBB+. The short-term rating is S-2. The Outlooks are Stable.

Download the rating report here.