UPDATE 1-Uniper signals little progress with Fortum on M&A deadlock

* Uniper’s rating at risk if Fortum takes majority - CFO

* Fortum can’t own Uniper majority for now

* Knight Vinke could call shareholder meeting in September (Recasts, adds comments from Uniper Chairman, Knight Vinke)

DUESSELDORF, Germany/FRANKFURT, May 22 (Reuters) - Uniper signalled on Wednesday little prospect of a rapid breakthrough in talks with top investor Fortum that might lead to a full takeover of the German utility.

Fortum and Uniper have been at loggerheads since the Finnish state-owned utility tried to take over the German group in 2017, a deal that Uniper’s management fiercely opposed due to concerns it might get broken up.

Russian regulators have barred Fortum from owning more than the current 49.99% in Uniper because of a water-testing licence owned by the German firm’s Russian unit Unipro.

Uniper has so far held on to the licence, effectively blocking a takeover.

“For the Uniper Management Board, ensuring a stable investment-grade rating is the line in the sand for any type of cooperative arrangement,” Uniper finance chief Christopher Delbrueck told Uniper’s annual shareholder meeting.

“If Fortum were to acquire a majority stake in Uniper and thus reduce our independence, our rating could be downgraded,” Delbrueck said. Rating agency S&P has a ‘BBB’ rating for Uniper, two notches above junk - or non-investment grade - status.

The comments suggest little progress in talks between the two companies aimed at repairing their strained relationship.

At the heart of the problem lies Fortum’s allegation that Uniper tried to sabotage Fortum’s takeover bid in Russia. Uniper has denied this.

To express its ongoing concerns, Fortum has proposed to delay a shareholder vote on endorsing Uniper’s management for 2017 and 2018 to clarify the role the management played in the takeover process - and whether it actively tried to block it.

Uniper has said it pointed out to Fortum early in the process that the water-testing licence, deemed strategic in Russia, could be a problem because state-owned entities are not allowed to own or operate such assets.

On Tuesday, Elliott and Knight Vinke - Uniper’s second- and third-largest shareholders which together own about 23% - dropped motions put forward at the annual shareholder meeting that could have paved the way for Fortum to gain full control of Uniper.

Sources familiar with the matter told Reuters they did so because Fortum committed itself to addressing the Russian obstacle in talks with Uniper. Uniper Supervisory Board Chairman Bernhard Reutersberg said Fortum had demanded several times that Uniper tried to remove the takeover obstacle in Russia.

Knight Vinke said if the deadlock persisted it would reserve the right to call an extraordinary shareholder meeting in September to let investors decide on a spin-off of Uniper’s Russian activities. (Editing by Tassilo Hummel and Mark Potter)