Struggling German Energy gaint Uniper (UN01.DE) has been handed a $15 billion bailout by the German Government on Friday.
The bailout is coming as the gas importer became the biggest casualty of Europe’s energy standoff with Russia over the war in Ukraine.
In addition, the government will allow Uniper to start passing on some of the costs of soaring gas prices to consumers in the coming months. To cushion the effect of the higher gas prices, German Chancellor Olaf Scholz said that more welfare support will be provided to poorer households.
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The bailout, which is amongst the biggest in German corporate history will see the government take a 30% stake in Uniper, reducing the ownership of its Finnish parent Fortum to 56% from nearly 80%. Stakeholders in the company has been involved in tough negotiations for weeks now.
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 shares of Uniper for €267mn and make available capital of up to €7.7bn 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.
The German leader went further to say that the government would eventually relinquish it’s stake.
The bailout package will need approval from the European Commission, and will require confirmation of Uniper’s investment grade rating by agency S&P, and the backing of Uniper Shareholders.
Other conditions attached to the deal, includes a commitment to suspend dividend payments for the duration of its stabilization period and a withdrawal of a lawsuit the Düsseldorf -based group filed against Netherlands over its coal phase-out.
The German Government, Uniper and Fortum in the wake of the deal 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.
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.”
Fortum and the German government also agreed that Germany will cover 90% of price increases which means Fortum would need to cover the rest.
Germany government cited the Lehman Brothers Bank collapse which helped trigger the 2008 financial crisis as a similar risk utilities faced today.
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 fulfil 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.
Earlier in July, Investogist reported that crisis hit Uniper was seeking government bailout.
Nnamdi Maduakor is a Writer, Investor and Entrepreneur
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