Siemens Energy AG is in talks with the German government about securing as much as €16 billion ($16.9 billion) in state guarantees as problems at its wind-turbine unit spread to the rest of the business. Shares plummeted 40%.
The company is seeking backstops over a two-year period after major shareholder and former parent company Siemens AG indicated it was no longer willing to help, according to people familiar with the matter. The company said Thursday it’s also speaking to banks, and the government confirmed the talks.
Siemens Energy needs the guarantees to win new large-scale contracts to build transmission networks and gas turbines. While those units are profitable, they’re now threatened by the strain that the string of losses from the Gamesa wind unit is putting on the company’s balance sheet in what has become one of Germany’s biggest industrial debacles.
The guarantees have become crucial after the company earlier this year forecast a €4.5 billion loss for fiscal 2024 despite assurances it had finally come up with a plan to address problems with certain wind turbines. S&P in July downgraded it to BBB-minus with a stable outlook from BBB with a negative outlook.
While the company has been working on a broad review of the turbine unit, final findings have yet to come through.
Siemens Energy shares took their the biggest intraday drop since the company was spun out of Siemens in September 2020. The slump triggered multiple trading halts and cut the manufacturer’s market capitalization by around €3.4 billion. It was the biggest drop for a stock listed on Germany’s DAX index since the collapse of Wirecard in June 2020.
The paper value of Siemens AG’s stake was cut by more than €800 million. Its shares fell as much as 5.9%.
“Siemens is now in close and continuous talks with all parties involved,” the company said in a statement. “As we have always said, we will make our decisions in line with the interests of Siemens AG and its shareholders.”
Siemens Energy doesn’t have acute liquidity problems, according to the people familiar with the talks. But the guarantees are important for securing the financing it needs for longer term projects, particularly in its gas and power division.
“We are therefore initiating measures to strengthen our balance sheet and are in talks with the German government on how to secure guarantee structures in the fast-growing energy market,” Siemens Energy spokesman Oliver Sachgau said.
Economy Minister Robert Habeck, speaking in Ankara, said the talks are “good and constructive.”
“We have already been talking intensively since Siemens Energy made this public and contacted us, and we have increased this intensity in the last 2 weeks,” Habeck said.
The company still has €110 billion in back orders. Germany’s RWE AG plans to build over 1 gigawatt of onshore wind farms with Siemens Gamesa turbines in the next four years, but declined to comment on whether the projects can still be carried out as planned.
Net losses and cash outflow are now expected to exceed market forecasts for the year, the manufacturer said.
Citi analysts led by Vivek Midha said uncertainty about the fourth quarter remains “very high.”
“The magnitude of the shortfall to estimates is unspecified, though clearly if it were minor, it is unlikely that it would have been flagged,” they said in a note. “Even if ENR has no near-term liquidity issue, the comment around measures to strengthen balance sheet is broad, meaning that investor concerns around an equity raise are likely to intensify.”
— With assistance by Eyk Henning, Kamil Kowalcze, Jan-Patrick Barnert, Joe Easton, and Allegra Catelli
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