Finland’s Fortum secures 2.35 bln euro loan to stave off energy crisis

Finnish energy company Fortum sign is seen at their headquarters in Espoo, Finland July 17, 2018. REUTERS/Ints Kalnins/File Photo

HELSINKI, Sept 6 (Reuters) – Finland’s Fortum (FORTUM.HE) said on Tuesday it had signed a bridge financing arrangement with Finnish government investment company Solidium for 2.35 billion euros ($2.34 billion) to cover soaring collateral needs in the Nordic power commodity market.

European countries are stepping up efforts to shore up power firms after Russia shut down the major Nord Stream 1 gas pipeline, worsening the continent’s power crisis. read more

The bridge loan to Fortum comes on top of a 10 billion euro package of credit for the power industry, announced by Finland on Sunday. read more

“The ongoing energy crisis in Europe is caused by Russia’s decision to use energy as a weapon and it is now also severely affecting Fortum and other Nordic power producers,” Chief Executive Markus Rauramo said in a statement.

His comments echo a similar view by the CEO of Fortum’s German unit Uniper (UN01.DE) and accusations by Europe that Russia is weaponising energy supplies in retaliation for Western sanctions imposed on Moscow over the war in Ukraine.

Russia says the West has launched an economic war and sanctions have caused the gas supply problems. read more

Fortum has said its main derivatives exposure on Nasdaq Clearing relates to Nordic system power price contracts for 2023.

The industry’s overall requirement for collateral in the Nordic power derivatives market recently hit 180 billion Swedish crowns ($16.7 billion), up from 25 billion in normal times after power prices rose 1,100%, Sweden’s debt office said on Saturday.

Fortum said its collateral tied up on Nasdaq amounted to around 3.5 billion euros as of Monday’s market close, far above historical levels but down from the roughly 5 billion requirement on Aug. 26 as power prices had come down somewhat.

“Stabilising Fortum’s financial position in the current market situation is understandably in the interest of the state owner,” Solidium Chief Executive Reima Rytsola said in a statement, adding that the loan was “exceptional”.

URGENCY

While parliament will begin to process legislation for the 10 billion euro package on Tuesday, the government said it wanted to make sure that an immediate solution be put in place for Fortum, thus adding the 2.35 billion loan.

“This arrangement has been done precisely for if a critical situation would emerge, this funding would be drawn immediately,” senior financial adviser Maija Strandberg of the government’s ownership management department told Reuters.

The jump in gas and electricity prices driven by a drop in gas flows from Russia since its invasion of Ukraine has put a heavy strain on utilities. read more

The terms of the loan secured by Fortum stated that it could only be used for units in the Nordic region, and not to prop up Uniper, which has sought a multi-billion euro bailout from the German government.

Fortum said it currently has sufficient liquid funds to meet collateral needs and would only withdraw the funds as a last resort.

“The arrangement is aimed at strengthening Fortum’s liquidity reserves and thereby securing Finnish energy supply,” the government said in a separate statement.

The first instalment of the one-year loan would be 350 million euros and needs to be withdrawn by Sept. 30 for the arrangement to remain effective, Fortum said.

Solidium would also get an option to buy 1% of Fortum’s shares, raising the state’s stake to 51.26%, the power company said.

($1 = 1.0042 euros)

($1 = 10.7520 Swedish crowns)

($1 = 0.9805 Swiss francs)

Reporting by Essi Lehto, editing by Terje Solsvik and Emelia Sithole-Matarise

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