Siemens Energy Seeks Government Guarantees Amid Talks
Siemens Energy Negotiates Government Guarantees
Talks between Siemens Energy and the German government to secure around 15 billion euros ($15.9 billion) in guarantees for the power equipment firm continued over the weekend, according to sources familiar with the matter. The discussions became public last week and caused Siemens Energy’s shares to plummet by as much as 39%. The company, which was spun off from former parent Siemens in 2020, has been grappling with major quality issues at its wind turbine unit, Siemens Gamesa. Both Siemens Energy and the German government are keen to strike a deal, but the negotiations are ongoing.
Government Guarantees: Not a Bail-Out
Contrary to popular belief, the government guarantees being sought by Siemens Energy do not constitute a bail-out. Instead, the company is seeking these guarantees to support its pipeline of large industrial projects, primarily in its former gas and power division. These guarantees are commonly issued for significant projects as a financial backstop to ensure the project’s viability. The guarantees provide evidence to customers that Siemens Energy can meet certain liabilities during the construction process. Major industrial firms often rely on these guarantees to secure downpayments and ensure project stability.
The Challenges Faced by Siemens Energy
Siemens Energy’s order book has reached a record high of 109 billion euros as of June 2022. Around 20%-30% of this amount, equivalent to approximately 15 billion euros, needs to be backstopped by guarantees. However, banks have become stricter due to higher interest rates, along with Siemens Energy’s wind turbine problems and a downgrade in the company’s long-term credit rating. Consequently, the company has turned to the government to secure the necessary guarantees. Siemens, as a major stakeholder, has been asked to provide some of these guarantees but has been hesitant due to concerns about mismanagement at the former subsidiary and the subsequent share price collapse. Nonetheless, Siemens still provides around 7 billion euros of performance guarantees to projects Siemens Energy is working on.
Strengthening Siemens Energy’s Finances
Aside from seeking government guarantees, Siemens Energy is exploring various measures to strengthen its balance sheet. This includes considering a possible capital increase and the potential sale of smaller divisions to increase cash flow. These steps are aimed at improving the company’s financial stability. Siemens Energy is currently evaluating these options, and no firm decisions have been made yet.
Siemens Energy’s negotiations with the German government highlight the challenges faced by the power equipment firm. They seek to secure guarantees for their large industrial projects, ensuring project viability and stability. Siemens Energy is also exploring other avenues to strengthen its finances. The company’s future will depend on successful negotiations and strategic decisions to navigate the changing landscape of the energy sector.
