German Energy Giant Uniper Gets $11 Billion for Margin Calls

(Bloomberg) -- German energy giant Uniper SE was forced to borrow billions to pay down margin calls -- the collateral that exchanges require to back up trades -- as European gas and electricity prices rallied.

Uniper got additional loans totaling 10 billion euros ($11.3 billion) from its Finnish parent Fortum Oyj and KfW IPEX-Bank, the company said in a statement after the close of trading on Tuesday. The borrowing facilities correspond to about two-thirds of the company's market value of just over 15 billion euros.

Europe is suffering an energy crunch, with Russia curbing gas supplies just as demand is rebounding. Gas and power prices broke records several days last year, and while a flotilla of U.S. liquefied natural gas cargoes cooled the rally in the second half of December, prices are now on the rise again.

Higher commodity prices lead to temporarily higher margining requirements, Uniper said. At the same time, higher commodity prices increase the value of Uniper's underlying gas and power assets. Therefore, Uniper's structural earnings prospects are not adversely impacted.

The European gas market had its most volatile year on record in 2021, with prices surging as much as 40% in just one day in October. The enormous gains meant some companies had to tap additional funds, while several small energy suppliers folded. RWE AG also had additional liquidity requirements, Chief Financial Officer Michael Muller said in November.

Uniper got an 8 billion-euro credit line from Fortum on Dec. 22, part of which has already been used. The company has also fully drawn the existing 1.8 billion-euro credit facility it has with its core banks. It further tapped 2 billion from KfW on Jan. 4 as a back-up facility in case of further extreme commodity market developments.

Power Hedging

This is the second time in less than six months that the company has been forced to prop up liquidity as energy prices climb. The utility first disclosed additional capital needs in its third-quarter earnings in November. At the time it said it had hedged 90% of German power for 2022 at 49 euros a megawatt-hour and 90% for 2023 at 51 euros.

Since then, prices soared. German electricity for 2022 expired at almost 220 euros, more than four times the price that Uniper had sold at. The contract for 2023 delivery is currently trading at 140.50 euros.

The quantum of these facilities shows how extreme recent commodity price movements have been and the impact on the margining payments for Uniper's sold forward volumes, analysts at RBC said in a note. While it should have no real impact on near-term earnings, the key takeaway here is the significant cash/credit/working capital positions that are needed by market participants.

Commodities trader Gunvor Group Ltd. also faced about $1 billion in margin calls last year, according to people familiar with the matter. The largest independent LNG trader in December signed a $1.14 billion loan to trade the fuel shortly after with lenders including Rabobank and Societe Generale SA.

Energy firms were also faced with extreme volatility at the end of last year, when gas prices surged all the way through March 2023. The fuel for delivery in the summer -- when gas is usually cheap -- exceeded 100 euros a megawatt-hour at one point in December, the highest on record.

(Updates with hedging values in seventh paragraph.)

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