Orsted : Issuer update following US government’s announcements in offshore wind

Offshore wind developer Orsted enjoyed massive rally on the equity side this morning , with stock up 15%. The rally was less pronounced on the credit side, with hybrid debts adding between 0.2 and 0. 8 cash price figure. This market move came after the US government made a u-turn on the $5bn Empire offshore wind project developed by Norwegian energy company Equinor, allowing construction activities to resume. As a reminder, Equinor suspended construction activities last month by its Equinor in accordance with halt work order issued by the US government . The sectoral read-across is clearly positive for Orsted which is has reached the construction phase for two offshore projects in the US, Sunrise (924 MW) and Revolution Wind (704 MW), with completion rates of 35% and 75%, respectively. Such announcement , alongside the proposed eased conditions for the phase-out of investment tax credits under the IRA (see Phase out of US tax credits for renewable energies: not as bad as expected ), suggests a potential reduction of the political uncertainties surrounding the development of offshore wind assets in the US . This is credit positive for Orsted but US political risk is only one part of the credit equation for the issuer . We remain cautious on Orsted , following Q1-results featuring cancellation fees in relation to the discontinued Hornsea 4 project in the UK (see Still too early to step in ), even though we see this move as a convincing sign of increased strategic and financial conservatism. Progress of the disposal plan and absence of major asset impairments / cancellation fees on ongoing projects remain two unknowns putting at risk the preservation of the BBB rating at S&P. For these reasons, despite seemingly attractive senior and hybrid spreads, we maintain our UW recommendation. We also reiterate our trade ide a: Buy V W 4.375% c31 or 7.875% c32 vs Ørsted 1.5% c30