Finland-headed energy utility major Fortum Oyj has announced that it has signed an agreement to sell its district heating business in the Baltic States to Switzerland-headed Partners Group, a leading global private markets firm, acting on behalf of its clients. The transaction is subject to customary closing conditions and is expected to be completed in the second quarter of 2021.
According to a statement, the total consideration on a debt- and cash-free basis is EUR 800 million. Fortum expects to record a tax-exempt capital gain of approximately EUR 240 million in the City Solutions segment’s second-quarter 2021 results.
The transaction is a continuation of Fortum’s strategy execution, whereby Fortum continuously reviews its businesses to optimize its portfolio for value creation. In June 2019, Fortum announced it considered the strategic options for its district heating businesses in Estonia, and in February 2020, Fortum announced it would review the district heating businesses in the other Baltic countries.
In the Baltics, Fortum provides district heating in five cities – Tartu and Pärnu in Estonia, Daugavpils and Jelgava in Latvia, and Klaipeda in Lithuania. Further, in those cities, Fortum owns four CHP plants as well as a 49 percent share of the Kaunas CHP plant that was commissioned in 2020 in Lithuania, through a joint venture.
Also in 2020, Fortum divested the district heating businesses in Joensuu and Järvenpää, in Finland. The strategic reviews of the heating and cooling businesses in Poland, its 50 percent stake in Stockholm Exergi in Sweden, and the Consumer Solutions business are currently ongoing.
The divestment is in line with our portfolio optimization and follows our successful divestments in Finland in 2020. The assets raised large interest among buyers as the business transformation to lower carbon intensity for these assets has largely been done, said Per Langer, EVP City Solutions at Fortum.
Partners Group to develop District Heating Platform
In 2020, Fortum’s sales in the Baltics were 1.4 TWh of heat and 0.6 TWh of power with an EBITDA of EUR 54 million, including subsidies for bio-based energy. The operations currently employ 271 Fortum employees, who will transfer with the business.
This investment reflects Partners Group’s continuing commitment to transformational investing in assets that have a meaningful impact on the communities in which they operate. The assets deliver heating to thousands of homes and businesses across the Baltic region, an area known for the severity of its winters, said David Daum, Managing Director, Private Infrastructure Europe, Partners Group.
Partners Group will work with the management team on a value creation plan that seeks to transform the company from a portfolio of attractive district heating assets into an independent customer-centric residential and industrial energy solutions provider. It will draw on its extensive experience in building out infrastructure platforms to grow the asset through new greenfield projects and targeted strategic acquisitions.
Other transformational initiatives will include extending the District Heating Platform’s heating networks to develop new heating and cooling solutions for industrial and commercial customers.
Our competitive advantage in the Baltic district heating market is built on our state-of-the-art generation assets, modern distribution network, which has low maintenance requirements, and diversified customer base, covering private, commercial and public sector clients. The platform has a great opportunity to use this advantage to capitalize on future growth in the heating market, and we believe Partners Group’s strategic vision and operational expertise makes it the right partner for us as we look to do this, said Niko Wirgentius, CEO, the District Heating Platform.