Beleaguered by Russian gas shut-offs, Uniper to enter German state ownership

The German government will acquire 99% of the shares in beleaguered gas importer Uniper SE, ending Finnish state-controlled Fortum Oyj's ownership of the company.

A nationalization deal was agreed to following a complete shutdown of Russian gas deliveries, which sent Uniper's capital requirements spiraling in recent months. The state will underwrite an €8 billion capital increase for Uniper at €1.70 per share.

"Uniper is a central pillar of the German energy supply," Germany's Federal Ministry for Economic Affairs and Climate Action said in a Sept. 21 news release. As a result of the takeover, the government has gained essential control rights in the company to ensure supply security in Germany, the ministry added.

Since the beginning of the invasion of Ukraine, Russia's state-owned PJSC Gazprom has curtailed the deliveries through the key Nord Stream 1 gas pipeline into Germany, sending gas prices soaring. Importers like Uniper have had to buy replacement volumes on the spot market at much higher prices.

At the end of July, Uniper's curtailments amounted to 60% of its contracted Russian gas volumes, with day-ahead gas prices at about €160/MWh, the company said. After deliveries stopped entirely, sending gas prices to more than €300/MWh, Uniper's curtailment losses exceeded €200 million per day.

While gas prices have since lowered slightly, Uniper is still losing about €100 million per day, with its accumulated losses amounting to more than €8.5 billion, CEO Klaus-Dieter Maubach told analysts Sept. 21.

At €1.70 per share, the nominal takeover price agreed by the parties represents the cost that the German government expects shareholders to bear for the bailout and is in line with previous bailout packages, such as during the COVID-19 pandemic, Maubach said.

"Let's not forget, these costs are only the result of Russia's war in Ukraine and stemming from the fact that Russia is deliberately not fulfilling its contractual delivery obligations," the CEO said. "Without Uniper taking those losses, it would be municipalities, industrial customers and, ultimately, households bearing that burden directly. The consequences would be widespread insolvencies and even stronger social tensions."

'Value destruction'

The German government agreed to buy a 30% stake in Uniper in July when it became clear that the company would not be able to weather the supply restrictions from its Russian contracts and continue buying gas on the wholesale market without help.

In the July deal, the companies agreed that Uniper would receive about €270 million from the state plus €7.7 billion via the issuance of mandatory convertible bonds. One of the main benefits of this approach was flexibility, which has become "irrelevant" because of worsening market conditions, Maubach said.

Since the original package was agreed upon, "European energy markets experienced a perfect storm, leading to enormous challenges not only for companies like Uniper but also for governments across Europe," Maubach said, describing the situation in the summer.

The full takeover by the German state is set to close at the end of 2022, assuming that regulators and an extraordinary meeting of Uniper shareholders approve.

Fortum, which became Uniper's majority owner in 2020, has invested about €7 billion of equity into the company and received €900 million in dividends during its ownership, CEO Markus Rauramo told analysts on a separate Sept. 21 call.

As part of the deal with the German state, Fortum will recover about €500 million for its majority stake.

"It is clear that we cannot be happy," Rauramo said. "This definitely has not gone as we had planned or I had anticipated."

Maubach similarly said he is "fully aware of the value destruction" that Uniper's shares have experienced since the war in Ukraine began. The company's stock was trading above €40 at the beginning of the year but closed at just €4.18 on Sept. 20.

"I know that there are shareholders out there who will be struggling to recover from this. I can just say: We at Uniper did everything we could to achieve a solution, i.e., to stabilize Uniper," Maubach said. "Ultimately, there was no alternative to today's solution."

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