Daily Management Review

Uniper Receives A $15 Billion Bailout From Germany Following A Russian Gas Outage


Uniper Receives A $15 Billion Bailout From Germany Following A Russian Gas Outage
On Friday, the German government intervened to save Uniper with a 15 billion euro ($15.28 billion) bailout, after the gas importer became Europe's greatest casualty of Europe's energy stalemate with Russia thus far.
The government will take a 30 per cent interest in Uniper as part of a bailout that is among the largest in German business history, lowering the holding of its Finnish parent Fortum to 56 per cent from over 80 per cent following weeks of difficult negotiations.
It would also allow Uniper to begin passing on part of the expenses of rising gas prices to consumers in the coming months, which German Chancellor Olaf Scholz said would be countered by increased welfare help to protect lower-income people.
The bailout highlighted how Russia's invasion of Ukraine in February has enormous ramifications for governments across Europe, who are grappling with skyrocketing energy costs and fears of acute gas shortages during peak demand winter months.
Following the announcement, Uniper shares fell more than 30% to new lows. Shares of Fortum were down 3 per cent.
"We are living through an unprecedented energy crisis that requires robust measures," Fortum CEO Markus Rauramo said, adding the deal reflected the interests of all parties. "We were driven by urgency and the need to protect Europe's security of supply in a time of war."
Scholz implored the country to come together at a news conference, recalling the popular song lyric "you'll never walk alone" in English, when announcing the Uniper rescue.
According to the terms of the agreement, Germany would purchase 157 million new ordinary Uniper shares for 267 million euros and make available capital of up to 7.7 billion euros in exchange for the issuance of required convertible instruments.
Furthermore, KfW will increase its existing loan line by 7 billion euros, bringing the total to 9 billion euros.
Scholz, who interrupted his vacation in southern Germany to finalise the bailout, said the government would eventually sell its interest.
The deal must be approved by the European Commission, and S&P must confirm Uniper's investment grade status. Uniper must also support the transaction.
It is subject to various conditions, including Uniper's withdrawal of a lawsuit against the Netherlands over its coal phase-out, as well as the group's commitment to stop dividend payments for the duration of its stabilisation period.
Following the bailout, Uniper, Fortum, and the German government will collaborate to develop a long-term solution to restructure the company's wholesale gas contract architecture, which has exposed the business to billions of dollars in losses.
The sides hope to reach an agreement on a longer-term solution by the end of 2023.
Germany has accused Russia of purposely suffocating gas shipments to Europe under false pretences in revenge for Western sanctions imposed following the invasion of Ukraine. Moscow denies doing so and said it is ready to fulfil all its commercial obligations.
Uniper, Germany's top importer of Russian gas, announced on Friday that it would sue Gazprom after the Russian business retrospectively declared force majeure for previous and current delivery deficiencies.
"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," Uniper Chief Executive Klaus-Dieter Maubach told journalists.
Due to a reduction in Russian supply, Uniper was forced to buy expensive gas on the spot market to make up for the shortage, rather than relying on long-term price agreements.
According to Fortum's Rauramo, it is too early to predict the total losses for Uniper and Fortum because they are dependent on the price and quantity of Russian gas delivered to Europe.
Fortum and the German government have agreed that Germany will cover 90% of price hikes, leaving Fortum to cover the remaining 10%.
Germany has warned that utilities face a collapse akin to that of Lehman Brothers, whose demise contributed to the 2008 global crisis. Scholz compared Friday's rescue to former ECB chief Mario Draghi's famous commitment to do "everything it takes" to save the euro.
"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," he said.