To assess the extent to which Fortum Oyj should issue hybrid bonds, we must analyze its financial position, capital structure, and recent performance based on the provided 2022 annual report facts, while considering the S&P Global Ratings methodology for utilities and the specific guidance on hybrid issuance levels.

**1. Financial Performance and Stability Analysis**
*   **Profitability Volatility:** Fortum reported a significant net loss of €10.29 billion in 2022, primarily driven by massive losses in discontinued operations (€-11.3 billion) and negative items affecting comparability (€-593 million). However, the "Comparable Operating Profit" remained positive at €1.87 billion, and "Comparable EBITDA" was €2.44 billion. This indicates that while the headline numbers are distressed due to one-off events and divestments (likely related to the Russian assets write-downs and Uniper exposure), the core continuing operations are generating cash.
*   **Cash Flow:** Cash flows from operating activities for continuing operations were positive at €2.1 billion. However, total cash flow from operating activities was negative (€-8.77 billion) due to discontinued operations. Crucially, the company generated positive cash from investing activities (€1.46 billion for continuing ops) and had a net decrease in cash, ending with €3.92 billion in liquid funds.
*   **Debt and Leverage:** Total liabilities decreased significantly from €136 billion in 2021 to €15.9 billion in 2022. This drastic reduction is largely due to the deconsolidation of assets/liabilities associated with discontinued operations (Uniper). Equity attributable to owners dropped from €12.1 billion to €7.67 billion. The leverage ratio (Debt/Equity) needs to be assessed on the *continuing* business basis. With Equity at ~€7.7 billion and significant debt remaining (Non-current financial liabilities €3.66 billion + Current financial liabilities €4.13 billion ≈ €7.8 billion), the leverage is moderate but the equity base has been eroded by the losses.

**2. Capital Structure and Hybrid Bond Rationale**
*   **Equity Erosion:** The substantial drop in equity (from €12.1bn to €7.7bn) weakens the balance sheet. Hybrid bonds, which can receive up to 100% equity credit (subject to the 15% cap of total adjusted capital), are an effective tool to repair the equity ratio without diluting existing shareholders.
*   **Refinancing and Flexibility:** The company has reduced its debt burden significantly through the divestment/deconsolidation, but it still carries financial liabilities. The market environment in 2022 saw rising interest rates (10Y Swap average 1.93%), making debt more expensive. Hybrid bonds typically carry a higher coupon than senior debt but offer deferrability, which provides flexibility during periods of earnings volatility.
*   **Rating Preservation:** Given the volatility in earnings (huge loss in 2022 vs profit in 2021) and the erosion of equity, Fortum's credit metrics have likely deteriorated. Issuing hybrids can help stabilize the "Adjusted Debt to EBITDA" and "FFO to Debt" ratios, which are key for maintaining an Investment Grade rating. The guidance suggests that if there is "Significant leverage pressure" or "Investment grade preservation strongly dependent on capital structure optimization," a higher issuance level is warranted.

**3. Determining the Issuance Level**
*   **0%:** Incorrect. The equity base has shrunk significantly, and leverage metrics need support. There is a clear rationale for strengthening the capital structure.
*   **3.75%:** This level is for "mild leverage optimization." Given the €10 billion loss and the halving of the equity base, the need is more than mild. The company is in a recovery/stabilization phase post-divestment.
*   **7.5%:** This level corresponds to "Moderate refinancing... Rating headroom moderately constrained... Hybrid issuance meaningfully improves adjusted leverage metrics." This fits Fortum's situation well. The company has exited its most toxic assets (Uniper) but is left with a thinner equity cushion. Issuing hybrids up to 7.5% of adjusted capital would provide a meaningful boost to equity credit, helping to absorb future volatility and supporting the credit rating without over-leveraging with expensive capital.
*   **11.25% - 15%:** These levels are for "High capex intensity," "Transformational M&A," or "Material downgrade risk without hybrid support." While Fortum has faced material risks, the deconsolidation has already removed the bulk of the immediate balance sheet stress. The core business is a regulated/utility-like entity with stable cash flows (Comparable EBITDA €2.44bn). There is no indication of a massive new capex program or acquisition pipeline that would require maximizing hybrid issuance. Furthermore, the cost of hybrids in a rising rate environment (2022 swaps ~1.9%) would be significant; issuing too much would unduly increase the weighted average cost of capital. The "Material downgrade risk" was largely addressed by the structural separation/deconsolidation. Therefore, the maximum 15% is likely excessive and costly.

**Conclusion:**
Fortum needs to repair its equity ratio after the 2022 losses but does not have the aggressive growth/M&A profile that justifies maxing out hybrid issuance. A moderate issuance that meaningfully improves leverage metrics while balancing cost is appropriate. 7.5% represents a balanced approach to strengthening the balance sheet post-crisis.

<answer>7.5%</answer>