£1bn hitch for SSE and Npower merger

ENERGY giants SSE and Npower could be forced to invest up to an extra £1 billion to seal their proposed merger.

Analysts have warned the suppliers would need to pump in extra cash to satisfy credit rating agencies that the new business, valued at £3 billion, deserves an investment grade rating.

It is understood that bosses working on the deal have not yet met with ratings agencies but were advised internally they are unlikely to get anything above ‘junk’ status. Without a stronger rating, the business would be charged higher interest rates by lenders, on whom they rely to fund purchases of gas and electricity on the wholesale markets. This could make the venture commercially unviable.

SSE and Npower said the issues stem from the price cap introduction, which regulator Ofgem has said will impact profits on all suppliers, as well as a rise in households switching to smaller suppliers.

Analysts at Bernstein said: ‘The end result will be an additional cash contribution from both parties into the new retail company. It is difficult to comment on the quantum of cash injection. We think it is unlikely to be greater than £1 billion for both parties collectively.’

Ratings agency Moody’s already has SSE under review for a possible downgrade, following a profit warning in September.