UPDATE 1-Fortum CEO says distribution unit attracts potential buyers

Tue Mar 19, 2013 1:02pm EDT

(Adds background and quotes on the possible sale)

HELSINKI, March 19 (Reuters) - Finnish utility Fortum's chief executive said its electricity distribution business was attracting interest from potential buyers, and shrugged off concerns that a foreign buyer would represent a risk to the country's power grid.

The state-controlled company has been assessing its strategic options and sources said last week it has hired Citigroup and Danske Bank to explore a 5 billion-euro ($6.5 billion) sale of the electricity distribution business in Finland and Sweden.

"It is clearly seen that this is drawing interest, which is not a surprise," Chief Executive Tapio Kuula told Reuters on Tuesday.

"The business as such is very predictable and moreover the assets are located in stable geographic regions, which makes this attractive to international investors."

The possible sale, due to be prepared in the course of 2013, would follow the trend of large energy firms selling regulated networks in order to cut debt and focus on power generation.

At Fortum, the distribution business has yielded a return on net assets of about 8 percent. Last year it generated operating profit of 328 million euros, with sales of around 1 billion euros - some 17 percent of the group's turnover.

Kuula reiterated that Fortum might remain a minority owner in the operations, while the company could also sell the Finnish and Swedish assets separately.

Finnish government officials have said previously they would prefer not to sell Fortum's domestic distribution assets - the country's largest - to a foreign buyer. Kuula said such concerns were not warranted.

"As a Finn, I wouldn't be worried as this business is subject to licence and it is regulated, so the owner must fulfil the criteria in any case," he said. ($1 = 0.7717 euros) (Reporting By Jussi Rosendahl; Editing by Ritsuko Ando and Tom Pfeiffer)

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