When a company needs billions of euros in one fell swoop, that has a worrying effect at first: Have your business collapsed? Do their costs consume all cash reserves? Accordingly, it is interesting when the energy company Uniper reported on Tuesday evening in an ad hoc announcement of an incredibly high amount that the company needs: The Düsseldorf company has secured loans of almost twelve billion euros. But in this case this is due to high demand – and reveals a lot about the crazy market for electricity and gas in Europe.
According to the report, Uniper took out all loans that banks quickly made available. That is an impressive 1.8 billion euros. In addition, shortly before Christmas, the company had signed a master credit agreement for a total of eight billion euros with the Finnish parent company Fortum. Uniper has now at least partially made use of that too. And that’s not all, the company secured a credit line of up to two billion euros from the state development bank KfW. The latter, however, is purely as a precaution, emphasizes Uniper, so far the billions have not yet been used.
What on earth does Uniper need so much money for? Isn’t the company making a lot of money from expensive electricity and gas?
The former Eon subsidiary, which went public in 2016, operates gas and coal-fired power plants in Europe. This includes the controversial coal kiln Datteln 4 in the Ruhr area. On the other hand, Uniper trades in energy sources on a large scale, for example imports gas from Russia and sells it on to municipal utilities or factories.
Like other large producers, Uniper is pursuing the strategy of not selling all of its energy immediately at the strongly fluctuating market prices. Rather, they enter into forward transactions to hedge themselves: For example, they are already selling part of the electricity that their power plants are not supposed to generate until next year. Of course, the other side demands money as security – in the event that Uniper cannot deliver the energy after all. If everything goes as promised in the end, the producer gets the money back.
You can think of it as a rental deposit: the tenant deposits money in the event that he damages the apartment. But if the owner gets the property back in good condition, he pays the deposit back.
“We want to remain cautious,” says Uniper’s chief financial officer
However, there is a big difference in many energy contracts. When electricity or gas in general become much more expensive, a future delivery often also gains in value. In blatant cases, producers have to deposit additional collateral, in other words: how Uniper now pour in more money.
The fact that it was able to get that far is due to the exceptional situation on the energy markets. Raw materials such as natural gas have become significantly more expensive in recent months. Germany recently paid an average of more than three times the price for gas imports than in the same period last year, reports the Federal Office of Economics and Export Control. Local gas storage facilities are comparatively weakly filled. At the same time, global demand has risen sharply since many industries have recovered from the Corona crisis. The prices have fluctuated strongly recently. And industry representatives like Eon boss Leonhard Birnbaum expect that gas could become even more expensive. For example, if the winter should be colder than usual, the political conflict in Ukraine should escalate or the additional Nord Stream 2 pipeline from Russia should not go into operation.
With the large number of loan commitments, Uniper now wants to arm itself against “future, extreme market developments,” as the company reports. “Energy prices have eased again recently, but we want to remain cautious,” says Tiina Tuomela, chief financial officer. Basically, the high demand for electricity or gas is good news. “Economically, Uniper is a very healthy company,” said Toumela. Uniper recently raised its profit forecast for the year just ended, and it will remain so. On Wednesday, the group temporarily lost three percent of its value on the stock exchange. The need for money is not completely unexpected, but the extent should surprise some investors negatively, write the analysts of the British investment bank Barclays.
One thing is certain: producers like Uniper cannot borrow the many billions for free, they have to pay interest on loans or defer other expenses. If companies try to recoup this expense from municipal utilities or other corporate customers, electricity and gas could end up being a bit more expensive.