The German industrial multinational Siemens is in dire need of cash as a result of bad investments in sustainable energy.
According to the magazine Der Spiegel, the company is in a major crisis and in need of huge state subsidies, in other words a bail-out.
In such a bailout scenario, Siemens ‘s shareholders and creditors would risk substantial losses.
“Without state support, the DAX-listed company can only accept new large contracts such as the construction of power grids to a limited extent,” the magazine reported.
It said Siemens’ top bosses are negotiating with the German Government in a bid to secure billions of euros in guarantees to finance new activities as its wind-farm business is causing huge losses. Until now, Berlin has kept its lips sealed over the issue.
The wind division, Siemens Gamesa, has been plaguing Siemens for a while and has struggled with quality problems.
Siemens Energy is concerned about challenges in acquiring guarantees from banks and wants the government and former parent Siemens to obtain the necessary guarantee framework, according to WirtschaftsWoche. The government might turn out to become the lender of last resort.
Siemens Energy recently had close to €10 billion in cash and undrawn lines of credit. The German power grid and gas turbine industries, in particular, are doing exceptionally well, with orders totalling more than €100 billion on the books.
But the combination of low orders and high losses in the wind-energy business is causing a major headache for the company.
Siemens needs hefty guarantees for large-scale projects such as grid expansion. Normally, banks provide those but now they are less inclined to do so as the wind division has suffered high losses for several years.
Siemens Energy now needs guarantees of up to €8 billion per year.
In 2017, the German Siemens Wind Power and the Spanish Gamesa merged their wind power business and became Siemens Gamesa.
Three years later, Siemens split off its entire energy business into Siemens Energy. The latter has been independently listed on the German stock exchange ever since.
The integration between Siemens and Gamesa never progressed well, with internal conflict rife, often over lower-than-expected profits and quality issues.
The ongoing energy crisis is only making matters worse as costs rise while prices for offshore wind-farm electricity have been fixed, leading to serious losses exacerbated by Chinese providers entering the market with lower prices.
In 2023, Siemens Energy is expecting a loss of €4.5 billion, while Gamesa is heading for a €4.3 billion loss.
Now Siemens is running to the German Government to plug the growing gaps in its finances. Berlin is allegedly open to assisting the company as it needs help with the country’s energy transition, or “Energiewende”.
The government is reportedly working on a plan with the help of major banks that should keep the taxpayer out of trouble, in principle.
According to business weekly WirtschaftsWoche, the German Government would cover 80 per cent of a first €10 billion funding tranche, while banks would bear the remaining 20 per cent cost.
Siemens AG, which still owns about 25 per cent of Siemens Energy, appears unwilling to co-operate on additional guarantees.
It remains committed to past promises worth almost €7 billion and it does not want to make any new ones. Siemens AG even intends to cut its investment in Siemens Energy further.
According to reports, the German Government is enraged by that attitude.
Bloomberg reported that, after the news of Siemens’ search for money broke, shares plummeted 36 per cent, the biggest intraday fall since June. The stock is down more than 55 per cent this year.
WTF? It looks like there aren't that many winners in the green energy transition. Siemens Energy falls as much as >30% to a fresh All-Time Low as the wind turbine firm seeks state guarantees. Wind-turbine unit stopped taking orders for certain platforms. Net losses, cash flows… pic.twitter.com/WhPhaW7s6s
— Holger Zschaepitz (@Schuldensuehner) October 26, 2023
