Ørsted troubles mount as S&P threatens credit-rating downgrade

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Ørsted, the world’s largest offshore wind developer, has been threatened with a downgrade by credit-rating agency S&P after taking huge writedowns on US projects it abandoned this week.

S&P Global Ratings said it was placing the Danish company’s long-term ratings on “CreditWatch Negative” saying the “severity” of the $5.4bn losses — including $4bn in impairments — was larger than anticipated and that it had concerns over “the project management issues this reveals”.

“We have revised downward our view of management and governance,” S&P said on Thursday. It said Ørsted’s rating could be lowered one notch to BBB early next year after a meeting with management.

The warning is likely to increase pressure on Ørsted’s chief executive Mads Nipper after the company’s shares fell by more than a quarter on Wednesday, taking the decline so far in 2023 to almost 60 per cent. The company’s shares — in which the Danish government holds 50.1 per cent — rebounded slightly on Thursday, rising 4.5 per cent to DKr264.

Investment bank Stifel cut its target price on the company to DKr427 from DKr519 on Thursday.

The offshore wind sector has been hard hit in recent months by the surge in inflation, technological and supply chain issues, and reticence by governments in the US and Europe to revise agreements that no longer cover the full cost of projects.

S&P said it had revised its view of Ørsted’s management and governance to “fair from strong” saying there were “signs that management might have been too aggressive in its expansion plans, and in reacting late to serious adverse developments”.

The rating agency added, however, that Ørsted’s decision to walk away from unprofitable projects could be “indicative of a more critical decision-making process going forward”.

While governments remain keen to make offshore wind a key part of the energy transition, recent blows to the sector have tempered some of the enthusiasm that had propelled companies such as Ørsted to lofty valuations.

In 2020, when oil prices were plunging because of Coronavirus lockdowns and European government’s were pledging to increase investments in renewable energy, Ørsted’s market cap briefly reached about $75bn, soaring above that of BP’s then beaten-down value.

Today, Ørsted’s market cap has shrunk to $20bn (DKr143bn) while BP is valued at $102.7bn, boosted by the recovery in oil and gas prices during the energy crisis.

Still, BP has not been immune to the troubles facing the offshore wind sector, booking its own $540mn writedown on wind projects off New York this week.

Anja-Isabel Dotzenrath, BP’s head of low carbon energy, told a Financial Times conference on Wednesday that the US offshore wind industry was “fundamentally broken” and required a “fundamental reset” to help the nascent market grow.