Fortum/Uniper: bailout could hinder green investment plan
Finish group’s financial buffer looks thinner if it buys out minorities soon
When the state has to step in to keep on the lights, one worries. When two countries get involved it’s a serious situation.
Nevertheless, shareholders in German gas and electric power utility Uniper remained calm on news the company had secured €10bn of additional facilities. Shares dipped just 2 per cent. The funds came from its Finnish parent Fortum — which owns 76 per cent — and German state bank KfW. The funds will cover Uniper’s growing liabilities on forward power and gas contracts.
Though Uniper depends on Russia for its gas, its minority shareholders have some reason to remain optimistic. Its market value has climbed 30 per cent since early July during the recent surge in European natural gas prices, up 2.5 times. While higher energy prices should translate into more earnings, Uniper sensibly hedges its commodity exposure. However, using these derivatives requires added cash margin payments when potential losses climb too quickly.
Uniper’s balance sheet has recently belied the underlying risk of these derivative positions. In the nine months to September it reported a net debt position of €1.3bn, not so far above its ebitda for the same period. However, it also reported a €4.7bn net loss, owing to mark-to-market losses on derivative contracts. Helping out Uniper should not overly stress Fortum’s balance sheet. Net financial debt there, at just 0.6 times ebitda, sits well below its two times target.
Fortum will find life more costly, though. It hopes to finish a lengthy takeover of Uniper, launched in 2017 soon after its spinout by former owner Eon. Markets have anticipated a buyout of remaining minorities, another boost to Uniper’s shares in the past year. The deal gave Fortum access to continental European power markets. However, buying Uniper roughly tripled Fortum’s carbon footprint, raising some questions about Fortum’s renewable energy plans and requiring more purchases of carbon allowances.
Moreover, Fortum’s financial buffer looks thinner if it buys out minorities soon. Using the three-month average Uniper share price, the cost would be €3.4bn. Net debt would then rise to 1.75 times this year’s expected ebitda, leaving less for its planned green investments.