Finland state

Finnish Fortum obtains a loan of 2.35 billion euros to avoid the energy crisis

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

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  • Nordic energy firms face increased margin calls on derivatives
  • Fortum secures bridge financing from government company
  • Fortum still has other financing, the loan will be a last resort
  • Need for guarantee motivated by soaring electricity prices

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

European countries are stepping up efforts to shore up power companies after Russia shut down the main Nord Stream 1 gas pipeline, deepening the continent’s power crisis. Read more

The bridge loan to Fortum, which bears a high interest rate of 14.2%, comes on top of a 10 billion euro government credit package for Finland’s power industry announced on Sunday. Read more

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“The terms are tough if you compare them with the price of financing otherwise and with the arrangements of other countries, but I am convinced that this facility exists,” Fortum chief executive Markus Rauramo told Reuters.

“We still have buffers even without that, and that gives us a lot more leeway,” he said, adding that bridging funds would only be used as a last resort.

Fortum’s Nasdaq-linked collateral stood at around 3.5 billion euros at Monday’s market close, well above historic levels but down from the requirement of around 5 billion on 26 August, as electricity prices fell somewhat.

Rauramo declined to say by how much collateral requirements would need to increase before Fortum needed to use the loan.

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Fortum said its main derivative exposure on Nasdaq Clearing was in the Nordic System power price contracts for 2023.

The industry’s overall collateral requirement in the Nordic electricity derivatives market recently reached 180 billion Swedish kronor ($16.7 billion), up from 25 billion in normal times after oil prices electricity increased by 1,100%, the Swedish debt office announced on Saturday.

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

EMERGENCY

As Parliament began processing legislation on the €10bn package on Tuesday, the government said it wanted to ensure an immediate solution was in place for Fortum, adding the €2. 35 billion.

“This arrangement was made precisely because if a critical situation arises, this funding would be taken immediately,” senior financial adviser Maija Strandberg of the government’s property management department told Reuters.

The terms of the Fortum-backed loan stated that it could only be used for units in the Nordic region and not to support its subsidiary Uniper (UN01.DE), which has requested a multi-billion euro bailout from the German government .

“The arrangement aims to strengthen Fortum’s cash reserves and thereby secure Finland’s energy supply,” the government said in a separate statement.

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

The company could ultimately do without bridge financing as it still has some 5.5 billion euros in other undrawn facilities, said Danske Bank head of credit research Jakob Magnussen.

“We see the need and risk of Fortum using this government-sponsored support facility as rather remote,” he wrote.

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)

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Reporting by Essi Lehto and Anne Kauranen; Additional reporting by Stine Jacobsen and Anna Ringstrom; Editing by Terje Solsvik, Emelia Sithole-Matarise and Jan Harvey

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