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Rating action

Scope Ratings GmbH (Scope) has today affirmed Uniper SE’s BBB-/Stable issuer rating. Scope has also affirmed the senior unsecured debt rating at BBB- and the short-term debt rating at S-2.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

Business risk profile: BB (unchanged). Uniper’s business risk profile benefits from its position as an important European player in power and gas supply; solid diversification regarding markets and technologies; accelerated decarbonisation of its power generation fleet (positive ESG factor); and some integration across the utility’s value chain. Challenges include industry-inherent merchant risks in non-regulated power generation and commodity trading; large parts of the power generation fleet with a weak position in the merit order and above-average carbon intensity (negative ESG factor); regulatory, environmental and political risks related to nuclear and fossil-fuel power plants (negative ESG factor); the vulnerability of group profitability to external and non-controllable effects; and overall margin dilution due to a high share of trading business.

During the European energy crisis, Uniper restructured its gas portfolio focusing on supplier diversification, closer integration of supply and sales, and the hedging of price exposure for the next one to three years, beyond which visibility remains limited. Following the discontinuation of Gazprom deliveries in 2022, Uniper’s open market position has turned from net seller to net buyer, which allows better balancing of margining requirements with other commodities, primarily power (of which Uniper is a net seller). In June 2024, Uniper terminated its gas supply contracts with Gazprom. The decision was made possible after an arbitration tribunal granted Uniper the right to terminate the contracts. The ruling provides Uniper with legal clarity. These developments contribute to improved stability and visibility on cash generation.

Nevertheless, Uniper’s business risk profile is also negatively affected by a number of factors. Uniper is implementing an asset divestment plan as part of remedies under EU state aid approval, with the agreement to sell Gönyű power plant in Hungary signed in February 2024. In addition, high gas storage levels and a secular decline in natural gas demand combined with a growing share of renewable energy sources and the good availability of nuclear reactors, further moderated European natural gas and power prices. This weakened the competitive position of the coal-fired power plants in Uniper’s generation fleet in Q1 2024 and led to a decline in the generation volumes of these power plants. This is only partly offset by the fact that coal-fired power plants continue to play an important role in securing supply, as evidenced by the placement of several plants (including Heyden 4, Staudinger 5 and Scholven C) in grid reserve.

Financial risk profile: BBB (raised from BB+). The upward revision of Uniper’s financial risk profile is driven by strong financial performance in 2023 and improved visibility on cash flows in the next couple of years, including the claims arising from the expected overcompensation received via the stabilisation measures to be paid to the German government.

Scope expects the company to maintain a very low leverage – as measured by debt/EBITDA* – at around 0x in 2024. However, the agency believes that this is unlikely to be sustained for a prolonged period, driven by the stabilisation of earnings and cash flows below recent levels, growing capex spending and likely dividend payments.

From a still strong level of EUR 1.5bn-2.0bn projected for 2024, EBITDA is likely to decline and stabilise at around EUR 1.0bn-1.5bn going forward, mainly driven by further moderation in market fundamentals. Scope expects a significant increase in investment spending to EUR 1.0bn-1.5bn in 2025 and EUR 1.5bn-2.0bn in 2026 as the company progresses with its transformation and growth focused strategy, pushing free operating cash flow deep into negative territory. Nevertheless, Scope expects credit metrics to remain solid overall with debt/EBITDA below 2.0x and EBITDA interest cover between 4x and 7x. This view is supported by Uniper’s target debt factor (defined by the company as economic net debt/adjusted EBITDA) of less than or equal to 2.5x.

Scope notes that margining receivables fell significantly from EUR 7.9bn at YE 2021 and EUR 6.2bn at YE 2022 to EUR 2.9bn at YE 2023 and EUR 1.5bn as of 31 March 2024. Scope expects margining receivables to stabilise around recent levels. Scope excludes margining receivables from its adjusted debt calculation because they cannot be freely used to cover operating expenses or maturing unrelated debt positions. The rating agency also treats the repayment of the overcompensation received via the stabilisation measures, estimated at EUR 2.2bn at YE 2023, as a debt-like item.

Liquidity: adequate. Uniper’s liquidity remains adequate. Scope’s view is primarily based on the availability of cash and cash equivalents of EUR 7.3bn as of 31 March 2024, the EUR 9.5bn KfW facility (unused as of 31 March 2024, reduced to EUR 5.0bn as of 30 April 2024) and the increased EUR 3.0bn revolving credit facility (unused as of 31 March 2024). These comfortably cover the repayment of the overcompensation received via the stabilisation measures, the moderate amount of maturing financial debt and the expected negative free operating cash flow.

Supplementary rating drivers: +1 notch. Scope continues to assess Uniper as a government-related entity applying the bottom-up approach according to its Government Related Entities Rating Methodology. The capacity of the German government (rated AAA/Stable by Scope) to provide support remains ‘high’. While Scope continues to assess the government’s willingness to provide support at ‘medium’, the agency notes that Uniper’s systemic relevance and default implications for the German government are lower than at the peak of the energy crisis. This view is mainly based on the company’s declining share of German power generation and gas supply, coupled with an improved situation in the energy markets. In addition, Uniper’s strong financial results in 2023 and improved cash flow visibility lower the likelihood of any financial distress that would require extraordinary state support. This is exemplified by the expiry (EUR 2.0bn) and early reduction (EUR 4.5bn) of the KfW facilities as of 30 April 2024. Scope also notes that the EU remedies require the German state to reduce its stake in Uniper to a maximum of 25% plus one share by end-2028. Preparations include the General Meeting decisions from December 2023 related to the equity structure. As a result, Scope has reduced the related rating uplift to one from two notches.

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating sensitivities

The Stable Outlook reflects Scope’s expectation of solid operating performance coupled with low leverage (debt/EBITDA below 2.0x) despite negative free operating cash flow. Scope also expects the German government to keep its controlling stake in the utility in the next couple of years.

The upside scenarios for the ratings and Outlook are (individually or collectively):

1. Reversion to neutral or positive free operating cash flow and debt/EBITDA remaining below 2.0x on a sustained basis
    
2. Stronger business risk profile, e.g. through higher and more stable profitability
    
3. Continued government support

The downside scenarios for the ratings and Outlook are (individually or collectively):

1. Debt/EBITDA above 3.0x and negative free operating cash flow for a prolonged period
    
2. Severe operational or liquidity issues that cannot be mitigated by existing government support measures
    
3. The German government giving up control of the company

Debt ratings

Senior unsecured debt including the EUR 2.0bn debt issuance programme has been affirmed at BBB-, the level of the issuer rating.

The affirmed S-2 short-term debt rating is based on the underlying BBB-/Stable issuer rating and reflects Uniper’s strong short-term debt coverage, which is supported by the available KfW facility and the revolving credit facility.

Environmental, social and governance (ESG) factors

In August 2023, Uniper presented its new, ambitious strategy to accelerate its transformation into a greener company with a low-risk business model. A successful execution of the strategy will likely support the company’s business risk profile in the medium to long term. Targets include an exit from coal by 2029; zero-carbon for at least 80% of installed generating capacity and for 5-10% of the gas portfolio by 2030; and carbon-neutrality for Scope 1 to 3 emissions by 2040, 10 years earlier than previously planned. The strategy assumes more than EUR 8bn of transformation and growth investments in 2023-2030.

Nevertheless, large parts of the power generation fleet still have a weak position in the merit order and an above-average carbon intensity in a European context. This is particularly the case for the highly CO2-intensive coal-fired power plants. The position of these plants in the merit order has weakened in Q1 2024, leading to lower and more volatile profitability and cash flow going forward.

The company is also exposed to regulatory, environmental and political risks related to nuclear and fossil-fuel power plants. While the security of energy supply amid the European energy crisis has put these risks into perspective, Scope expects them to play a greater role in the future.

All rating actions and rated entities

Uniper SE

Issuer rating: BBB-/Stable, affirmation

Senior unsecured debt rating: BBB-, affirmation

Short-term debt rating: S-2, affirmation

*All credit metrics refer to Scope-adjusted figures.

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for these Credit Ratings and/or Outlook, (General Corporate Rating Methodology, 16 October 2023; European Utilities Rating Methodology, 17 June 2024; Government Related Entities Rating Methodology, 13 July 2023), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings and/or Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Marlen Shokhitbayev, Director
Person responsible for approval of the Credit Ratings: Sebastian Zank, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 13 June 2017. The Credit Ratings/Outlook were last updated on 25 September 2023.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope's ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope's ratings, rating reports, rating opinions, or related research and credit opinions are provided 'as is' without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope's ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will independently assess the suitability of each security for investment or transaction purposes. Scope's credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.