I’ve been wondering what collateral Uniper might have given Fortum in the financing arrangement implemented at the end of this year, where Fortum provided Uniper with a loan and a guarantee on Uniper’s behalf.
I haven’t really delved into the companies’ balance sheets very thoroughly, but I am aware that Uniper has, for example, a lot of hydropower and hydroelectric plants.
So, I’ve been wondering if Fortum has received these plants or other similar assets as collateral. Potential pledges could, for example, be beneficial in a situation where Uniper’s economy is being rehabilitated, in the sense that Fortum might be able to transfer these so-called good assets to its own balance sheet against its receivables.
And indeed, I haven’t even delved into the question to the extent that I would have correlated the value of these plants or other Uniper assets with the financing arrangement, let alone the price of other risks arising from the war.
I see that the world is entering a new cold war. Globalization as we know is dead at the moment. The steps taken by Russia and by Europe and USA (hard economic sanctions) will divided these two areas both economically, politically and socially in the sense that there is no going back to normal anymore (at least for the near future).
We may witness transformative policy paradigms. Olaf Schultz speech today re-wrote Germany’s foreign policy that have been in place for over 30 years. More money to the military, perhaps less of a pacifist role towards something new.
In this context Fortum’s upper management’s hand are tied. How will they navigate their business and assets between the new west and the new east?
If Germany’s foreign policy can change in one speech then perhaps we are soon witnessing a new energy policy in EU?
One which the green transformation is partly replaced by energy security? And what does this mean for Fortum? Perhaps this will be a blessing in disguise? Or perhaps these new energy focal points does not align with Fortum’s current strategy?
If I would invest in Fortum today, and would like to have a safety of margin as an investment thesis, I would start by looking at the value of their business in the new west and assign 0 euro to all assets in Russia, This includes all assets also which Fortum owned before they bought Uniper.
A new energy policy context may also highlight even further the underlying risk in Uniper energy trading segment as energy prices will most probably be rather volatile for many years.
Now I am not saying that Fortum’s business is not worth anything in Russia but this is just my conservative view of mitigating risk.
Your analyze is really good. Where are you living (country, city)?
I think that Fortum/Uniper is in fantastic central in European energy market. Of course it is in risky situation, but opportunities against risks are fifty sixty.
I’ll hope that you continues to post your opinion about Fortum
Thanks! I have my home in two countries more or less: Denmark and Finland.
However I am by no means an expert in energy companies as such but I am rather familiar with policy analysis in general due to my work (I have a phd in political science as an education).
Fortum’s financial statement release will therefore be published next week on Thursday, March 3, 2022. The messages above contain really good questions, to which it would be welcome to receive further clarification from the company.
For example, I think I grasp Fortum’s side reasonably well even in this geopolitical turmoil. A slight hit from Hanhikivi, and if the Kremlin confiscates Russian assets, the profit would drop by about 1/5 (but riskiness and carbon intensity would improve). Fortum’s holdings in the West are so valuable that I’m not particularly worried, even in this situation.
But Uniper’s share, with its derivatives, massive trading, Fortum’s billion-dollar loans, etc., is hazy. What if the gas taps from the East close, what would happen to the company? And much more.
Inderes has usually arranged a CEO interview with @Verneri_Pulkkinen in addition to the financial statement presentation by @Juha_Kinnunen.
Now would be the time for a thousand euros and rubles to get clarity on these perplexing matters. The company cannot know what will be decided in the Kremlin, but it should provide more information, especially on Uniper’s position and status, including its relationship with Fortum.
I hope - and I think many others feel the same way - that, led by Juha and Verneri, we will get a proper Fortum special in Inderes’ ether by the end of the week. Never before has such a thing been so badly needed… Thank you in advance!
Update: BP to exit stake in Russian state oil company. Perhaps this is an omen for Fortum’s Russia future. Source financial times.
Edit: the value of their 20 percent stake in Rosneft would be lead to a “material non-cash charge”. Whatever that means. BP has been under considerable political pressure to do something.
BP situation differs somewhat as Fortum has not faced any pressure so far.
An update on Fortum will be available in the morning, after it has been reviewed. I did my best to address the various Russia-related risks and tried to assess some impacts in a bad scenario. Multiplier effects are very difficult to pinpoint, and I’m not yet aware of Russia’s counter-sanctions. Anything could come from there in the coming days.
There are many moving parts, and they are moving very quickly these days. I didn’t bother to adjust forecasts for the coming years, as the situation could change overnight. We’ll see what happens to the ruble, and the financial statement will be out soon. But hopefully, the report will help to clarify the situation. Or then the weekend’s work went to waste
We live in interesting times, but sometimes you have to sleep.
Germany’s Uniper in 2020 abandoned plans for a 10 Bcm/year floating LNG import terminal at Wilhelmshaven, instead looking at the site for hydrogen imports.
Scholz’s comments suggest an FSRU at Wilhelmshaven could be brought back to the table.
Scholz also said Berlin would look to build a reserve of coal as well as gas. “We have decided to increase the storage volume of natural gas by 2 Bcm via so-called long-term options,” he said. “In addition, we will purchase additional gas on the world markets in coordination with the EU.”
The European Commission is expected to make new proposals soon on requirements for member states to hold minimum gas storage levels as well as helping countries with joint gas procurement to help build stocks.
Germany already has access to significant storage capacity – the biggest in the EU – at around 23 Bcm, according to Gas Infrastructure Europe data.
However, as of Feb 25, German storage sites were just 29.7% full, the data showed.
I recommend that those interested in Fortum’s risks familiarize themselves with the report itself. It is significantly more extensive than the morning review comment.
The guys at GS (Goldman Sachs) do precise work. Personally, I would say that an accurate valuation of Fortum currently requires a large number of very uncertain assumptions about the future. And not just about cash flows, but also, for example, about Russia’s actions. That’s why I would gladly put a large margin of error around the target price, not a decimal.
Edit2: It became a mess when I started commenting, supposedly with GS’s views. I don’t know for sure, but the target price seems to have changed as well. I won’t comment further as I don’t have access to the research itself and my previous comments went wrong too. I apologize for the hassle
Yeah, I guess there will be a huge number of vague factors in the coming months, such as whether the German government supports Uniper in various projects vs. Russia, whether the EU supports sanctioned companies that primarily operate in the EU but have parts in Russia, etc.
I’ve sometimes wondered if Fortum could, in some scenario, make exchange deals for its Russian assets for some Russian-owned assets in Europe. Because if Russian-owned assets start to be expropriated, this will most likely also happen across the border.
If I understood correctly, the entire group’s Russian assets are approximately 5 billion, and their profit component accounts for about 20% of the total profit.
NS2 will probably not have any value for a long time, and Hanhikivi (nuclear power plant project) seems to be a drop in the ocean in the big picture, and Rosatom (Russian state nuclear energy corporation) probably doesn’t want to buy reactors either. Can you think of any Russian energy assets in Europe that could be traded?
I understand, of course, that this alternative is very far-fetched, but so was this war scenario.
Quite an interesting idea, although it sounds wild. Nothing immediately comes to mind, but presumably, there are such things. If they are suitable or interesting for Fortum, the probabilities decrease significantly. Hanhikivi (a nuclear power plant project) is unlikely to progress in this environment, and the process would probably start almost from scratch if Rosatom were removed from the equation.
the Russian share of Nord Stream 2 (NS2) would be transferred to Uniper
the Hanhikivi power plant would be transferred to Fortum
Rosatom would supply the reactor (the reactors are actually quite good + Fortum has the ability to adapt them to Western standards)
Fortum’s Russian assets would go to a local operator
the interim sum would be settled in some way (e.g., Russian ownership of the Akkuyu power plant in Turkey would be transferred to Fortum + Fortum would be able to operate it – edit: Turkey might be interested in this, considering the changed security environment; large Russian ownership is unlikely to be good in the future)
@PorssiPatruuna’s mention of Gazprom’s infrastructure would also fit into this equation
Now, of course, the situation is what it is. But from those, one could scrape together five yards. I don’t know about the earnings component – whether it would replace that 20% hole or not
