Germany in Final Stage of Bailout Deal for Russia-Hit Uniper

(Bloomberg) -- The German government is in the final stage of a deal to bail out Uniper SE to prevent the collapse of a linchpin in the country’s energy network in the wake of Russia’s moves to slash gas supplies.

Chancellor Olaf Scholz’s administration will get a stake of between 25% and 30% in a capital increase, with a nominal price of 1.70 euros a share, according to people familiar with the situation. Senior officials in the German government will discuss the package on Friday and an agreement could be announced later in the day, they said. Scholz will address the press at around noon in Berlin.

Uniper became the first major corporate casualty of Europe’s unfolding gas crisis when it asked the government for a bailout earlier this month. Germany’s biggest buyer of Russian gas was pushed to the brink as President Vladimir Putin squeezed supplies in retaliation over European sanctions against Russia’s invasion of Ukraine.

The company’s shares climbed as much as 3.2%. The stock has tumbled more than 70% this year. 

The Dusseldorf-based company -- setup in 2016 from the former fossil-fuel assets of E.ON SE -- emerged as the weakest link in the energy system that powers Europe’s largest economy. Its extensive contracts with state-owned Gazprom PJSC made the German energy company vulnerable to supply cuts and forced it to cover shortfalls at high prices on the spot market.

The package includes equity-like hybrid securities of about 8 billion euros ($8.2 billion) -- more than double the company’s current market value -- as well as a larger credit line from state-owned lender KfW, said the people, who requested not to be identified because the talks are private.

The German chancellery declined comment. Uniper wasn’t immediately available for comment. 

As it burned through cash, Uniper had already drawn a 2 billion-euro credit line from KfW and started talks about additional funds after getting 8 billion euros in financing earlier this year from main shareholder Fortum Oyj. 

The Finnish utility, which had balked at providing additional money, is on board with the government’s bailout deal and having its holding diluted, the people said. Fortum’s shares jumped 5.7%. 

Germany couldn’t afford to let Uniper fail as the fallout would ripple through the economy, hitting industrial companies and local utilities served by the utility. While flows on a key link have restarted, supplies remain reduced and storage levels are well below what’s needed to heat homes and keep factories running through the winter. 

On Thursday, Germany raised its targets for gas storage, reflecting growing concern about energy supplies. The move increases the likelihood that the government will intervene in managing reserves. 

Economy Minister Robert Habeck has warned that Russia’s gas squeeze posed the risk of Lehman Brothers-like contagion with Uniper’s failure potentially spilling over to the wider economy. The International Monetary fund estimated that the country is at risk of losing almost 5% of economic output if Russia shuts off gas supplies.

(Updates with press conference timing)

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