March 13, 2015 / 4:30 PM / 4 years ago

Finland's Fortum to sell Swedish power grid for $6.9 billion

HELSINKI (Reuters) - Finnish utility Fortum FUM1V.HE has agreed to sell its Swedish electricity distribution business to a consortium including Canada’s Borealis for about 6.6 billion euros ($6.9 billion), completing its exit from Nordic power grid assets.

The deal is the latest in a series of regulated grid sales by European energy firms seeking to cut debt and focus on potentially more profitable power generation.

It follows Fortum’s sales of its smaller Finnish and Norwegian distribution businesses, from which the state-controlled company raised 2.9 billion euros.

The consortium buying the Swedish grid includes Borealis — the infrastructure investment arm of the OMERS pension fund — as well as Swedish pension funds Forsta AP-Fonden, Tredje AP-Fonden and Folksam. Infrastructure and pension funds are attracted to regulated assets by their predictable returns.

Sources told Reuters last week the Borealis-led consortium was lining up a final bid for the asset.

The deal values the network at around 16.6 times earnings before interest, taxes, depreciation and amortization (EBITDA), the same as for Fortum’s Finnish grid sale in 2013.

“It’s a good price, I had expected something around 6 billion euros,” said Inderes analyst Antti Viljakainen.

Fortum said it expected to book a sales gain of about 4.4 billion euros, or around 5 euros per share.

The utility also updated its long-term targets, but kept its target for return on capital employed at 12 percent and added it had a somewhat higher risk profile after the deal, which would “require a stronger balance sheet in order to maintain financial flexibility.”

That prompted its shares to retreat from an early 4-year high to close down 2.4 percent.

ACQUISITIONS, DIVIDENDS

Fortum did not give details on its plans for the proceeds, but said it would focus on power generation as well as combined heat and power production. The company has previously said it was looking beyond the Nordics and Russia.

“I believe they will announce several power production investments in the coming years,” Inderes’ Viljakainen said.

A source close to the matter told Reuters last month that Fortum was interested in a majority stake in Slovak power producer Slovenske Elektrarne.

Pohjola Markets analyst Henri Parkkinen said strategy reviews at firms such as Germany’s E.ON (EONGn.DE) could create opportunities for deals in the Nordic region.

He said Fortum could also in future pay out more special dividends. Last month, it announced an unexpected special dividend. Some analysts said that was encouraged by the Finnish government, which owns 50.8 percent of the company and is contending with a weak economy and stretched finances.

The Swedish grid had EBITDA of 365 million euros on sales of 634 million last year. It employs about 380 people and distributes electricity to 903,000 customers.

Editing by Elaine Hardcastle and Mark Potter

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