Uniper: deal details vs. market expectations (OTCMKTS: UNPRF)

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Following our recent update on Uniper (OTCPK:UNPRF), the German energy giant has raised the white flag and been rescued by the German government. As already mentioned, Uniper will be partially nationalized to cope with financial difficulties due to the increase in energy prices and the reduction of gas deliveries by Gazprom. Although gas flow currently passes through North Stream 1, supplies have remained limited to less than 40% of total capacity. Russian President Vladimir Putin motivated the pipeline shortfall citing technical issues, but we know this is a geopolitical game. However, “Uniper is crucial for the German economy“, said German Chancellor Olaf Scholzjustifying the takeover of the energy giant.

Transaction details

Berlin will acquire 30% of Uniper with a rescue plan of around 15 billion euros. The biggest importer of Russian gas in Europe hopes to stop, at least in part, the cash drain of 50 million euros per day. Specifically, the company will carry out a capital increase of approximately €267 million for an issue price of €1.7 per share and, with public borrowing of up to €7.7 billion in convertible bonds, an extension of €2 billion to €9 billion in aid. This operation will bring the German government to a 30% stake, and the Finnish public company Fortum, which is the main shareholder, will see its stake reduced from 80% to 56%. From October 1, 90% of the cost of gas will be passed on to B2B and B2c customers.

Market expectations?

In Frankfurt, Uniper shares plummet after the government agreed to bail out the energy giant. Currently, it is losing more than 35% at €7 per share. The financial package was in line with market expectations, but our internal team believes that this support does not solve Uniper’s cash burn and will not prevent the German energy giant from incurring further losses.

In our opinion, below are our main takeaways:

  • We believe the financial package depends on gas supplies, including volumes from Russia and higher costs from other countries; the aid package has solved a short-term financial problem but there are questions about the gas supply in the medium-long term;
  • This operation leads to a dilution of the participation of the minority shareholders and there remain outstanding questions on the relationship between Uniper and Fortum (still the majority shareholder);
  • Interest rates were not disclosed;
  • From October, gas prices will be transferred to Uniper customers but it should be noted that gas bills have already increased by more than 100% compared to last year’s price;
  • Financially speaking, it is not known what the reference price will be for a further dilution of the shares. This, in conjunction with point 1, is probably the biggest threat that current shareholders face.

What was in line with market expectations is that no future dividends will be paid and that there will no longer be an incentive compensation program from the management teams. This corresponded to the rescue of Deutsche Lufthansa. Looking at the details, we see that the German government is forcing Uniper to withdraw an ongoing ligature against the Netherlands. Despite the decline in share price, we provide a holding rating given the wide range of results Uniper currently faces.

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