Uniper, one of Germany’s largest utilities, was forced to seek € 10 billion in funding to avoid a cash crisis after gas supplies from Russia to Europe slowed, causing prices to rise.
The company said it had acquired € 8 billion in credit from its majority shareholder Fortum, the Finnish power company, and € 2 billion from state-owned bank KfW after the increase in gas and electricity prices last month caused claims for cash to cover derivative positions used to hedge contracts with clients.
Europe’s wholesale natural gas price rose almost 100 percent in the run-up to Christmas to a record high of € 180 per megawatt hour, when buyers rushed to buy supplies. This has led to higher power prices across the continent.
This is the second time in less than six months that Uniper has been forced to seek additional liquidity, underlining the effects of rising energy costs on utilities and commodity traders, who are also in a hurry to ensure additional liquidity.
Uniper said it acquired Fortum’s credit line on December 22, part of which had already been used, and agreed on January 4 further funding from KfW as a “backup facility in case of further extreme commodity market developments”.
KfW said it had granted Uniper the credit line to ensure “liquidity in this special situation at the request of the government”.
A German government official said if the KfW loan was used, a “bonus waiver was agreed with the company by the management board”.
To date, this has not happened, but the company has fully withdrawn from an existing € 1.8 billion credit facility provided by its core group of lenders.
“Higher commodity prices lead to temporary higher margin requirements,” Uniper said. “At the same time, higher commodity prices increase the value of Uniper’s underlying gas and power assets. That is why Uniper’s structural earnings prospects are not adversely affected by higher prices. ”
Düsseldorf-based Uniper, which has about 11,7000 employees, was established in 2016 as a result of the fossil fuel assets of the German energy company Eon under state pressure to decarbonize power sources.
It is one of Europe’s largest generators with 34 gigawatts of capacity and is also a major supplier of gas and power. The company supplies natural gas and power to about 600 customers in Germany and neighboring countries, ranging from industrial customers and municipalities to regional distributors.
It was one of five companies supporting Nord Stream 2, the $ 11 billion pipeline across the Baltic Sea that will enable Russia’s Gazprom to send 55 billion cubic meters of gas a year to Europe and bypass Ukraine.
The company relies on gas supplies from Russia to supply its customers. Like its competitors, Uniper uses derivatives to hedge against price fluctuations in commodity markets and close margins. This usually involves the sale of futures contracts linked to European gas and power prices.
As prices skyrocketed, losses on these contracts increased, requiring Uniper to make margin payments to brokers and stock exchanges.
In November, the company reported a loss of almost € 4.8 billion for the first nine months of 2021 due to brand-to-market losses on derivative contracts. The company said at the time that it had hedged 90 percent of its German power for 2022 at € 49 per megawatt hour and 90 percent for 2023 at € 51.
Shares in Uniper, which recently reached a record high at the end of last month, fell 2.3 percent to € 41 on Wednesday.
Commodity bankers said Uniper is not the only company trying to secure additional liquidity in light of unprecedented volatility in natural gas prices, which has fluctuated violently since Christmas.
With European gas storage levels 20 percent below seasonal norms, the market remains fragile and exposed to further shocks, according to analysts.
Fortum, which owns 76 percent of Uniper, described the new credit facilities as “precautionary measures to ensure additional liquidity and financial flexibility primarily for the winter season”.
“During 2021, European gas prices rose to 1,000 percent and, together with power prices, were at unprecedented levels in December. “Under these market conditions, Uniper’s focus remains on ensuring reliable deliveries to its customers and meeting its obligations,” he said.
A spokesman for the Federal Ministry of Economic Affairs and Climate Protection said the KfW loan was a “hedging measure”.
“KfW loans serve precisely this purpose of providing companies with additional liquidity and are generally available to all sectors,” the spokesperson said.
Additional Reporting by Olaf Storbeck in Frankfurt