Finland raised a loan of more than 2 billion euros for Fortum through Solidium
FORTUM and the Finnish government announced yesterday that they have reached an agreement on a 2.35 billion euro loan that the energy company can take out from its majority owner to secure its solvency in the face of sharply increasing collateral requirements.
The loan is not part of the emergency financing system announced by the government last weekend, which aims to prevent large energy companies from collapsing under the weight of their collateral requirements.
However, its terms are comparable to the terms of loans and guarantees of EUR 10 billion. The interest on the loan would be 10 percent for the first six months and 12 percent for the remaining repayment period, but the actual annual interest cost, including arrangement and commitment fees, would be 14.2 percent. For Fortum.
The energy company would also be required to launch a free private placement, which allows the state to subscribe to 8.97 million shares and increase its holding in the company by one percentage point. The arrangement would also limit the company’s ability to reward its management, but not its ability to pay dividends.
The loan would be given by the state-owned investment company Solidium.
“Financial institutions are very cautious about the situation” considered Minister of European Affairs and Ownership Management Titti Tuppurainen (SDP). “The conditions are so strict that I am sure this will encourage Fortum to seek financing elsewhere.”
Markus RauramoFortum’s CEO on Tuesday told It was critical for YLE to get guarantees that it will receive financing if the price of electricity rises significantly from its recent peaks.
“Scraping that kind of funding on a quick schedule from the banks or the capital markets – there’s a limit to that,” he told the broadcaster.
Fortum’s collateral requirements were around 3.5 billion euros on Monday, which is 1.5 billion euros less than the peak of around five billion euros at the end of August. Rauramo said that the company has the liquidity required for its collateral, but the loan may have to be increased if prices rise to a significantly higher level.
He added an indication of volatility last week, when electricity derivatives prices rose by around 80 euros over three days.
“If similar price increases had continued, the situation could have become very serious for the entire electricity market,” he told YLE. “The liquidity needs of the entire market can become so large that it is very good that governments have started to provide liquidity to secure the operation of the market.”
Rauramo in press release also called for urgent regulatory changes to curb “unreasonably high” margin and collateral requirements.
“The EMIR regulation, which regulates commodity trading, does not differentiate between financial sector operators and companies protecting their future electricity production – both have the same cash collateral requirements. Power companies protecting their own production should be allowed to use their future production as collateral, he said.
On Tuesday, Tuppurainen justified the urgency of the situation for arranging financing through Solidium.
“A strong state is needed here,” he said quoted saying Helsingin sanomat newspaper. “Every day that [the previously announced 10-billion-euro emergency financing scheme for energy companies] is not valid is a risk for all electricity companies and, more broadly, for the electricity market – and thus for citizens. The decision about Fortum had to be made without delay.
Parliament is expected to hold its last session on the financial plan next Tuesday.
Aleksi Teivainen – HT