Sweden Caves to Europe Power Market Rout as Asset Sales Loom

Vattenfall Writes Down $4.6 Billion After European Expansion
The company reported a net loss of 23.7 billion kronor in the second quarter, compared with a profit of 874 million kronor in the same period a year earlier. Photographer: Michele Tantussi/Bloomberg

Sweden signaled it may be readying the non-Nordic units of Vattenfall AB for divestment as the utility writes down $4.6 billion after its expansion into Germany and the Netherlands backfired.

“We need to analyze this thoroughly and in an unprejudiced manner,” Financial Markets Minister Peter Norman, who oversees state assets, said yesterday in an interview in Stockholm. “Vattenfall has three big problem areas: coal in Germany, nuclear in Germany and gas in the Netherlands.”

Utilities, including Vattenfall and EON AG, are struggling to adjust to plans in Germany to shift energy consumption in the largest European economy away from fossil fuels and over to solar and wind. Power companies as of March hedged their future electricity output more than at any time in the past five years in response to the longest slump in prices on record.

Vattenfall, the largest Nordic utility, said yesterday it will invest less and push through deeper cost cuts after writing down the value of its assets in northern Europe by 29.7 billion kronor ($4.6 billion). The Stockholm-based company cut its investment target to 105 billion kronor in 2014 to 2018, 18 billion kronor less than a previous plan through 2017. The cost-cutting goal was raised 67 percent for 2014 to 2.5 billion kronor. Costs in 2015 will be cut by 2 billion kronor, it said.

The yield on the company’s benchmark 6.25 percent note maturing in 2021 slid two basis points to 2.14 percent as of 9:12 a.m. in Stockholm.

First Step

Prime Minister Fredrik Reinfeldt’s government has been selling assets including stakes in Nordea Bank AB and phone company TeliaSonera AB, since coming to power in 2006. Sweden’s parliament in 2011 opposed selling a stake in Vattenfall, which operates 7 of Sweden’s 10 nuclear reactors and 92 of the Nordic nation’s hydropower stations.

Vattenfall yesterday unveiled plans to split its operations into two divisions, one for the Nordic markets and one for continental Europe and the U.K.

“This could be a first step in the way of divesting the non-Nordic assets and also fossil fuelled assets,” said Jakob Magnussen at Danske Bank A/S in Copenhagen. “I think it’s their ambition to regain the position they had in the 90s, as a local champion in the Nordic region, which was non-CO2 emitting.”

Take Responsibility

Vattenfall started expanding outside Sweden in the mid-1990s, when it bought a Finnish electricity distribution company and started doing business in Germany. Since then, it’s spread its operations to Poland, Denmark, the U.K. and the Netherlands. Most of the impairments announced yesterday stemmed from its Dutch unit Nuon Energy NV, which Vattenfall bought for 89 billion kronor in 2009.

“Vattenfall needs to take responsibility for their operations, and I think that is what they are doing when intensifying the savings program and splitting up the company,” Norman said. “This is a good way forward.”

Vattenfall earlier this year said it misread energy markets when it made the Nuon purchase, which included fossil-fuel powered plants. On Feb. 12, the company wrote down the value of Nuon’s generating assets by 17 percent after energy demand and carbon emission prices fell short of forecasts.

The company said yesterday that it now values Nuon at 52 billion kronor.

Quarterly Loss

In 2010 and 2011, Vattenfall started selling some of its international operations, including its German high-voltage transmission grid, its Polish and Belgian operations and parts of its Finnish unit. In 2011, the Swedish utility was forced to write down the book value of its two nuclear power plants in Germany after Europe’s biggest economy decided to take its 17 nuclear plants out of operation by 2022.

Vattenfall said the writedowns announced yesterday included 14.5 billion kronor relating to hard coal and gas power plants in the Netherlands, 4.1 billion kronor for hard coal plants in Germany and 2.5 billion kronor for combined heat and power plants in the Nordic countries. It reported impairments of 6.8 billion kronor on goodwill, mainly at its trading operations.

Vattenfall, which traces its roots back to 1909, reported a second-quarter net loss of 23.7 billion kronor, compared with a profit of 874 million kronor in the same period a year earlier.

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