## Analysis of Fortum Oyj's Suitability for Hybrid Bond Issuance

### Company Profile and Business Risk

Fortum Oyj is a Finnish energy company (public limited liability company) headquartered in Espoo, Finland. It operates in the power and gas sector, which aligns with the "Unregulated Power and Gas" and potentially "Regulated Utilities" frameworks described in the S&P methodology.

**Key observations:**

1. **Sector fit:** Fortum is a major European utility/energy company. Utilities are among the most common hybrid bond issuers, as the instrument fits well with their business model (stable cash flows, investment-grade profiles, capital-intensive operations).

2. **Massive discontinued operations losses:** The financial statements reveal enormous losses from discontinued operations (-€11.3 billion in 2022, -€4.1 billion in 2021). This is clearly related to the disposal/write-down of Uniper, which Fortum acquired and subsequently had to deal with during the 2022 energy crisis. The €7.9 billion loss attributable to noncontrolling interests and the €3.4 billion loss attributable to parent from discontinued operations underscore this.

3. **Continuing operations are profitable:** From continuing operations, Fortum earned €1.011 billion in profit in 2022 (down from €4.008 billion in 2021). Comparable EBITDA was €2.436 billion (up from €2.016 billion), and comparable operating profit was €1.871 billion (up from €1.429 billion). This shows the core business remains solid.

4. **Significant balance sheet contraction:** Total assets dropped from €149.7 billion to €23.6 billion, reflecting the deconsolidation/disposal of Uniper-related assets and derivative positions.

5. **Equity erosion:** Equity attributable to owners fell from €12.1 billion to €7.7 billion, and total equity from €13.7 billion to €7.7 billion.

### Financial Metrics

- **S&P Net Debt / EBITDA: 1.84x** — This is a relatively comfortable level for a utility, suggesting the company is solidly investment grade.
- **S&P FFO / Net Debt: 45.56%** — This is very strong for a utility, well above typical BBB thresholds.
- **Moody's adjusted leverage trend: Improving** — Positive signal.

These metrics suggest the company is comfortably investment grade, potentially in the A or strong BBB area rather than weak BBB.

### Arguments For Suitability

- **Utility sector:** Fortum is a major European utility — the classic hybrid bond issuer sector
- **Investment grade profile:** The leverage metrics (1.84x Net Debt/EBITDA, 45.56% FFO/Net Debt) are consistent with a solid investment-grade profile
- **Post-Uniper restructuring:** After the Uniper crisis, Fortum may need to rebuild its balance sheet and credit profile; hybrids could help
- **Capital-intensive business:** Significant PP&E (€7.3 billion) and ongoing investment needs
- **Comparable operating profit improving:** €1.87 billion in 2022 vs €1.43 billion in 2021

### Arguments Against Suitability

- **Never issued hybrid bonds:** This is explicitly called out as a "strong signal" of Not Suitable or at most Marginally Suitable
- **Very strong financial metrics:** Net Debt/EBITDA of 1.84x and FFO/Net Debt of 45.56% suggest the company doesn't need hybrid capital to maintain its rating — it's already comfortably positioned
- **Improving leverage trend:** Moody's notes improving leverage, reducing the urgency for hybrid issuance
- **Post-Uniper simplification:** After divesting Uniper, Fortum is a smaller, more focused company. The massive balance sheet contraction (from €150B to €24B) suggests the company has already taken significant deleveraging steps
- **No existing hybrids to refinance:** No call date approaching
- **Strong liquidity:** €3.9 billion in liquid funds

### Assessment

While Fortum operates in a sector (utilities/energy) that is classically suited for hybrid bonds, several factors weigh against suitability:

1. **The company has never issued hybrid bonds** — a very strong negative signal per the guidelines
2. **Financial metrics are quite strong** — 1.84x Net Debt/EBITDA and 45.56% FFO/Net Debt don't suggest a company struggling to maintain its rating
3. **Improving leverage** — there's no deterioration requiring hybrid support
4. **No clear use of proceeds** — no imminent large M&A, no hybrid refinancing needs

The company's profile appears more like a **strong investment-grade utility that doesn't need hybrid capital** rather than a BBB-area company that could materially benefit from it. However, the utility sector profile and the fact that the Uniper situation significantly impacted equity (down from €12.1B to €7.7B) could create some future rationale. The dividend reduction (from €1.14 to €0.91 per share) also suggests some financial pressure.

On balance, the never-issued-hybrids signal combined with strong metrics and improving leverage trend point toward Not Suitable or Marginally Suitable. However, the utility sector profile and the equity erosion from the Uniper disaster provide some potential rationale for future issuance if the company wanted to strengthen its balance sheet. I lean toward Marginally Suitable given the sector fit but acknowledge the strong counter-signals.

<answer>Marginally Suitable</answer>