Fortum, Finland’s state-owned energy company, received the thumbs up from the bond market for the expensive write-down of its entire Russian business, providing the issuer with solid demand for its first dual-tranche trade since it exited the country.
Fortum (rated —/BBB/BBB), opened books on a five year euro benchmark sized deal at 120bp over mid-swaps and on a 10 year euro benchmark at 170bp over, following a day of marketing them.
Barclays, BNP Paribas, Dankse Bank, ING, Mizuho and Nordea ran the deal.
While the deal was not a blowout, both tranches were comfortably oversubscribed by their launches. The 10 year saw slightly more demand, being doubly oversubscribed, and the 25bp concessions on each tranche are roughly in line with other deals during this busy May have landed.
Fortum without Russia
The deal was a major test of bond market sentiment towards Fortum, as came just over a week since the company announced it is to completely exit Russia. The decision followed a decree issued by Russian president Vladimir Putin at the end of April instructing Russian authorities to seize control of PAO Fortum, Fortum’s Russian assets.
As part of the change in control, Moscow installed Vyacheslav Kozhevnikov as PAO Fortum’s chief executive, ousting Alexander Chuvayev.
The Kremlin’s takeover marked a “point of no return for Fortum”, the company said on May 11.
Fortum recorded second quarter impairments of €1.7bn, equal to the remaining book value of its Russian assets. Its net cash loss is around €2bn.
“In the second quarter, we close our books on our operations in Russia for good,” said Markus Rauramo, Fortum’s CEO. “Despite the significant impairments that we will record, our financial position remains solid.”
Rather than seeing this significant hit to the company’s finances as a concern, the bond market welcomed what CreditSights analysts described as the group’s “de-risked Nordic focus”.
Fortum is a rare issuer — it only has two bonds outstanding — and is state-owned, which are both seen as investors as positives.
Few data points
Fortum’s €750m 2026 notes were trading at 57bp over mid-swaps before the new deal was announced, while the company’s €750m 2029s were at 88bp over mid-swaps. This puts fair value on a five year from Fortum at around 80bp over.
Fortum also trades around 20bp wide to Germany’s EnBW. With the German company’s €500m March 2033s trading at 95bp over mid-swaps before Fortum’s deal was announced, fair value for a new 10 year from Fortum sits at roughly 120bp over mid-swaps. A lead confirmed that they saw the same fair value levels.
Both tranches in Fortum’s latest deal tightened to pay new issue concessions of 25bp. The €500m five year landed at 105bp over mid-swaps from €1bn of pre-reconciliation demand. and the €650m 10 year at 155bp over from €1.3bn of pre-reconciliation demand.