RWE Is Biggest Loser on DAX as S&P’s Rating Nears Junk

  • S&P cuts debt to lowest investment grade with negative outlook
  • Nuclear storage costs, listing of renewables unit weigh on co.

RWE AG was the biggest loser on Germany’s benchmark DAX index after S&P Global Ratings late Monday cut the debt of the nation’s largest power producer to the lowest investment grade with a negative outlook, one step above junk.

RWE fell the most in six weeks as nuclear storage costs and a plan to separate and list its renewables, grid and retail customer business weigh on the Essen-based company’s shares and debt rating.

“The negative outlook reflects both the execution risks linked to the IPO of RWE’s downstream business and the uncertainties on the terms of the nuclear commission’s nuclear waste obligations’ settlement,” S&P said in a statement. A planned listing “marks the start of dilution in cash flows coming from assets with stable earnings generation.”

RWE is “prepared” for a non-investment grade rating, Chief Financial Officer Bernhard Guenther told reporters on a call last month, without saying whether he expected it to happen. The utility is seeking a “pragmatic and realistic” solution as the risk premium proposed by Germany’s government assigned commission on the funding of the country’s nuclear exit by 2022 would mean an additional burden of 1.7 billion euros ($1.9 billion) for the company, he said.

RWE press office didn’t immediately return a call seeking comment on the S&P downgrade.

The utility will sell about 10 percent of the new company in an initial public offering this year. While more stakes may be sold, the utility intends to keep a majority.

RWE fell 5.1 percent to close at 11.845 euros in Frankfurt. The DAX index dropped 1.4 percent.

‘Real Danger’

“The danger of a junk rating is real,” Sven Diermeier, an analyst at Independent Research GmbH, said by phone from Frankfurt, pointing also to additional risks such as a the prospect of a British exit from the European Union.

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Moody’s Investors Service Inc. also ranks RWE’s debt at the lowest investment grade, while its outlook is stable. Fitch Ratings Ltd. ranks it at the second-lowest investment grade with a negative outlook.

Wholesale power prices are trading near their lowest level since 2003, while Germany’s shift to renewable energy are squeezing margins at conventional coal and gas plants in Europe’s biggest power market.

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