By September 2021, European gas prices had doubled in a year. The German economy ministry downplayed predictions of state intervention in the energy market. The denials did not last long. This week, the EU approved German plans worth up to €34.5bn to nationalise power utility Uniper, including a €8bn capital increase.
Uniper is the biggest bailout triggered by Europe’s energy crisis. It stands as a milestone to Germany’s retreat from its ill-advised dependence on Russian hydrocarbons. This has so far cost the German government €264bn according to consultants Bruegel, equivalent to 10 per cent of GDP.
When 200 terawatt hours of long-term supply contracts with Russia evaporated, Uniper could no longer cover its commitments. Germans shivered at a forthcoming economic contraction. Uniper’s Finnish owner, conglomerate Fortum, watched its equity vanish.
Fortum took over as majority owner in 2017. This irked Uniper bosses, who hoped for complete independence. These days, they must feel relieved.
Germany will pay Fortum €498mn — €1.7 per share — for its 78 per cent stake. The erstwhile owner’s average holding price was over €23, according to Bloomberg data. Germany will eventually pay off Fortum’s €4bn in loans to Uniper. The relatively beneficial terms of the separation have caused Fortum’s five-year credit default swaps to fall by two-thirds in price to 99 basis points.
The EU asked for remedies before agreeing to the bailout. Uniper must sell some assets by 2027, including its Russian power generation business. The government must cut its stake in Uniper to 25 per cent or under by 2028.
All that suggests Uniper will be dressed up for sale in the years ahead. In the meantime, remaining Uniper minority investors should consider selling into future price rallies.
The bailout may actually be overpriced if it is predicated on energy costs higher than their current trajectory implies. The benchmark price for European natural gas was under €100 on Wednesday. But the value of ending Germany’s Faustian pact with Russia is immeasurable.
The Lex team is interested in hearing more from readers. What is your take on this massive bailout? Please tell us what you think in the comments section below