The German government has been forced to issue a bailout to save energy supplier Uniper, as Russian cuts in gas supplies have pushed the company to the brink of collapse.
After weeks of tense negotiations, the 15 million euro ($15.28 billion) bailout has become the biggest in German corporate history. It will involve the government taking a 30% stake in the energy company, reducing the the stake of Finnish parent company, Fortum, to 56% from nearly 80%
The agreement will also allow Uniper to begin passing its increased energy costs on to consumers over the coming months. German Chancellor Olaf Scholz said the government will make sure the increased costs are more than offset by welfare support to poorer households.
Uniper shares plummeted to record lows as the company’s stock lost more than 30% of its value. Fortum shares dropped 3% on the news.
Fortum CEO Markus Rauramo said, “We are living through an unprecedented energy crisis that requires robust measures… We were driven by urgency and the need to protect Europe’s security of supply in a time of war.”
Under the terms of the agreement, the German government has agreed to purchase 157 million new Uniper shares at a cost of 267 million euros. It will also make another 7.7 billion of capital available against issuance of mandatory convertible instruments. Meanwhile state lender KfW will raise an existing credit line of 2 billion euros by another 7 billion euros, for 9 billion euros in total credit.
Scholz has said the government intends to eventually relinquish its stake.
The deal will need the approval of the European Commission, and will require confirmation from Uniper’s investment grade rating agency, S&P. It will also need the approval of Uniper’s shareholders.
The deal also contains several conditions. Uniper must withdraw a lawsuit against the Netherlands over the government’s coal phase-out. Additionally the Duesseldorf-based group will have to suspend dividend payments for the entire duration of its stabilization period.
After the stabilization period, and by the end of 2023, Uniper, Fortum, and the German government will have to work together and arrive at an agreement to reform the company’s business plans and gas contract architecture, all of which, in its present form, has exposed the group to billions of euros in losses.
Uniper Chief Executive Klaus-Dieter Maubach as blamed the disaster on Russian state energy company Gazprom’s reductions of gas flows. As the Russian flows of gas that had been negotiated previously under contract waned, Uniper was forced to purchase expensive replacement gas on the spot market to fulfill its contracts, and offer it to customers under contract for cheaper previously negotiated prices. Maubach noted, “To date, we have already suffered billions in damages and there is no end in sight. Gazprom itself has not shown any willingness to pay for even part of the damage.”
Germany’s Scholz noted of the rescue, “We will do everything necessary that we can together as a country, as companies, as citizens, to get through this situation so that nobody is put in an impossible situation.”
