Source: Infographic WORLD
Even before the war in Ukraine, prices on the energy exchanges exploded. A growing number of companies are now threatened with insolvency – because they immediately have to add billions of euros for futures transactions. The federal government is helping with record loan amounts.
Dhe federal government is fighting against the acute danger of a wave of insolvencies in the energy industry. According to information from WELT AM SONNTAG, a growing number of companies are threatened with insolvency due to the upheavals on the wholesale market for electricity, oil and gas. Several large energy companies are mentioned in the scene.
Energy managers, who wished not to be named, expressed fears of a “domino effect” and “a sort of Lehman Brothers in the energy industry.” The bankruptcy of the US investment bank in 2008 triggered a chain reaction of a global financial crisis. “These are significant market distortions in a structurally relevant industry segment,” said a lawyer who advises the energy industry on financing issues.
Some companies have already contacted the federal government because of financial bottlenecks. This week, after Uniper, a second energy company applied for help. As can be heard from the Federal Ministry of Finance, the support is a KfW loan of 5.5 billion euros with a short term.
It is one of the largest loans that the state development bank has ever granted to a company. The parties involved did not name the company. However, it is probably a large power plant operator that does not obtain any energy supplies from Russia, but has very reliable sources of supply.
The companies’ payment difficulties are only indirectly related to the war. Instead, the trigger is the sharp rise in prices on the futures market, where future energy supplies are traded. Normally, power plant operators or electricity suppliers use such transactions to protect themselves against short-term price fluctuations.
For the mechanism to work, they must constantly deposit a certain amount of cash for the futures market transactions – which is usually not a problem. However, this provision of the German Stock Corporation Act hits them particularly hard, because the prices for electricity on the stock exchange have increased almost tenfold in a very short time. Some companies can no longer afford the increase in security payments that this entails, the so-called margin call.
According to insolvency law, a company that cannot meet its financial obligations due to a liquidity gap must eliminate the financial bottleneck within three weeks. This can also be achieved through loan commitments from banks or government institutions. If this does not succeed, insolvency must be declared if the liquidity gap is greater than ten percent.
Situation can “develop dynamically”
“It can happen very quickly,” said the lawyer. Overall, according to financial circles, the affected energy companies currently have to add a high double-digit billion amount. The credits granted are intended to be used solely for the said security deposits, but not to cover losses or costs of the company.
You don’t see the big wave yet, but you are aware that things could “develop dynamically”, according to government circles. The two previous cases could be managed well with the available instruments.
The energy group Uniper had already announced on January 4 that it had drawn down the entire contractual credit lines of 1.8 billion euros from its most important banks. In addition, a credit line agreement for eight billion euros was agreed with the Finnish main shareholder Fortum. In addition, the state development bank KfW provided a “revolving credit facility” of up to two billion euros, the term of which should end on April 30th.
“The aforementioned measures increase Uniper’s resilience to extreme future market developments and the resulting security services,” the company said. On Monday last week, Uniper asked for a “precautionary extension” of the KfW credit line in view of the persistently volatile markets.
Companies were already burdened by higher security requirements last year. At that time, electricity prices had risen sharply for economic reasons after the pandemic had subsided. After Putin’s war increased the risk of a gas and thus electricity shortage, prices on the European energy exchange EEX also rose significantly.