ADVERTISEMENT

ADVERTISEMENT

Business

Germany gives Uniper $15 billion in aid after Russian gas crashes

ADVERTISEMENT

Written by admin

ADVERTISEMENT

ADVERTISEMENT

  • The government will acquire a 30% stake in Uniper
  • Uniper faces collapse due to supply cuts and high prices
  • Uniper may pass on higher gas costs to consumers
  • Uniper shares fall to record low
  • Scholz vows to help households offset rising electricity bills

FRANKFURT/HELSINKI/BERLIN, July 22 (Reuters) – The German government stepped in to save Uniper (UN01.DE) with a 15 billion euro ($15.28 billion) bailout on Friday after the gas importer became the world’s largest a victim of the energy confrontation between Europe and Russia so far.

In one of the largest bailouts in German corporate history, the government will take a 30% stake in Uniper, reducing its Finnish parent company Fortum (FORTUM.HE)’s ownership to 56% from almost 80% after weeks of difficult negotiations.

It will also allow Uniper to start passing on some of the cost of rising gas prices to consumers in the coming months, which German Chancellor Olaf Scholz said will be offset by additional social support to protect poorer households.

Register now and get FREE unlimited access to Reuters.com

The aid underscored that Russia’s invasion of Ukraine in February has serious implications for governments across Europe as they grapple with rising energy prices and fear severe gas shortages during the winter months of peak demand.

Following the announcement, Uniper’s shares fell more than 30% to a record low. Fortum shares fell 3%.

“We are in an unprecedented energy crisis that requires decisive action,” said Markus Rauramo, CEO of Fortum, adding that the deal reflects the interests of all parties. “We were driven by urgency and the need to protect the security of supplies to Europe during the war.”

At a press conference, Scholz asked the country to unite, citing the lyrics of the popular song “You’ll Never Walk Alone” in English, while announcing Uniper’s bailout.

Under the agreement, Germany will buy 157 million new common shares of Uniper for €267 million and provide capital of up to €7.7 billion against the issuance of mandatory convertible instruments.

In addition, state lender KfW (KFW.UL) will increase the existing credit line by 7 billion euros to 9 billion in total.

Scholz, who cut short his holiday in southern Germany to complete the bailout, said the government would eventually give up its share.

TERMS AND CONDITIONS

The package requires the approval of the European Commission and confirmation of Uniper’s investment rating by S&P. The deal also needs support from Uniper’s shareholders.

It contains certain conditions, including the withdrawal of a lawsuit by Uniper against the Netherlands in connection with the abandonment of coal, as well as the obligation of the Dusseldorf group to suspend payment of dividends during the stabilization period.

Following the bailout of Uniper, Fortum and the German government will work on a long-term solution to reform the company’s bulk gas contract architecture, which has caused the group billions in losses.

According to them, the parties intend to agree on a long-term solution by the end of 2023.

Germany has accused Russia of deliberately stifling gas flows to Europe under trumped-up pretexts in response to Western sanctions following its invasion of Ukraine. Moscow denies this and says it is ready to fulfill all its commercial obligations.

Germany’s largest importer of Russian gas, Uniper, said on Friday that it would sue Gazprom (GAZP.MM) after the Russian company retroactively claimed force majeure due to past and current short deliveries.

“To date, we have already suffered billions in losses, and there is no end in sight. Gazprom itself has not shown readiness to compensate even part of the damage,” Uniper CEO Klaus-Dieter Mobach told reporters.

Reduced supplies from Russia meant that instead of relying on long-term price agreements, Uniper had to buy expensive gas on the spot market to make up the shortfall.

Fortum’s Rauramo said it was too early to estimate Uniper’s and Fortum’s overall losses as they depend on the price and quantity of Russian gas supplied to Europe.

Fortum and the German government have agreed that Germany will cover 90% of the price increase, meaning that Fortum will have to cover the rest.

Germany said utilities risked a collapse similar to that of Lehman Brothers, whose collapse triggered the 2008 financial crisis. Scholz compared Friday’s bailout to former European Central Bank (ECB) chief Mario Draghi’s famous promise to do “whatever it takes” to save the euro.

“We will do everything necessary that we can together as a country, as companies, as citizens, to overcome this situation so that no one is left in a hopeless situation,” he said.

($1 = €0.9847)

Register now and get FREE unlimited access to Reuters.com

Reporting by Christoph Steitz, Essi Lehto, Matthias Inverardi, Holger Hansen, Andreas Rinke, Markus Wacket, Miranda Murray, Matthias Williams and Tom Sims; Writing by Christoph Steitz and Matthias Williams; Edited by Maria Sheehan, Kirsty Knoll, Barbara Lewis, Jane Merriman and Louise Havens.

Our Standards: Thomson Reuters Trust Principles.

#Germany #Uniper #billion #aid #Russian #gas #crashes

ADVERTISEMENT

ADVERTISEMENT

About the author

admin

Leave a Comment