FRANKFURT/HELSINKI/BERLIN — The German government stepped in to rescue Uniper with a 15 billion euro ($15.28 billion) bailout on Friday after the gas importer became the biggest casualty of Europe’s energy standoff with Russia so far.
Under a bailout that is among the biggest in German corporate history, the government will take a 30% stake in Uniper, reducing the ownership of its Finnish parent Fortum to 56% from nearly 80% after weeks of tough negotiations.
It will also allow Uniper to start passing on some of the costs of soaring gas prices to consumers in the coming months, which German Chancellor Olaf Scholz said would be offset by more welfare support to shield poorer households.
The bailout underscored how Russia’s invasion of Ukraine in February has major implications for governments across Europe as they grapple with soaring energy costs and fears of acute gas shortages over the peak demand winter months.
Uniper shares plunged more than 30% to record lows following the announcement. Fortum shares were 3% lower.
“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.”
At a news conference, Scholz asked the country to pull together, invoking the popular song lyric “you’ll never walk alone” in English, while announcing the Uniper bailout.
Under the agreement, Germany will buy 157 million new ordinary Uniper shares for 267 million euros and make available capital of up to 7.7 billion against issuance of mandatory convertible instruments.
In addition, state-lender KfW will raise an existing credit line by 7 billion euros to 9 billion in total.
Scholz said the government would eventually relinquish its stake.
CONDITIONS AND APPROVALS
The package needs approval from the European Commission, and requires confirmation of Uniper’s investment grade rating by agency S&P. The deal also needs the backing of Uniper shareholders.
It carries certain conditions, including that Uniper withdraws a lawsuit against the Netherlands over its coal phase-out as well as a commitment by the Duesseldorf-based group to suspend dividend payments for the duration of its stabilization period.
Following the rescue, Uniper, Fortum and the German government will work on a long-term solution to reform the company’s wholesale gas contract architecture, which has exposed the group to billions in losses.
The parties intend to agree on the longer-term solution by the end of 2023, they said.
Germany has accused Russia of deliberately strangling gas flows to Europe on spurious pretexts in retaliation for Western sanctions after the invasion of Ukraine. Moscow denies doing so and said it is ready to fulfill all its commercial obligations.
A drop in Russian gas supplies meant that, rather than being able to rely on long-term price agreements, Uniper had to buy expensive gas on the spot market to make up for the shortfall.
Germany has said that utilities risked a collapse similar to the Lehman Brothers bank whose demise helped to trigger the 2008 financial crisis.
Fortum’s Rauramo said it was too early to estimate what the total losses for Uniper and Fortum would be as these depended on the price and quantity of Russian gas to Europe.
Fortum and the German government have agreed that Germany will cover 90% of price increases which means Fortum would need to cover the rest.
“In the meantime, we have the 9 billion total liquidity facility which can be drawn upon just to cover the cash impact but eventually losses will be covered by an equity like instrument,” Rauramo said. ($1 = 0.9847 euros)
(Reporting by Christoph Steitz, Essi Lehto, Matthias Inverardi, Holger Hansen, Andreas Rinke, Markus Wacket Miranda Murray, Matthias Williams; Writing by Christoph Steitz and Matthias Williams; Editing by Maria Sheahan, Kirsti Knolle, Barbara Lewis, Jane Merriman and Louise Heavens )