The German government could give billions in state guarantees to troubled energy technology group Siemens Energy (ENR1n.DE) as it looks to help it deal with problems at its wind turbine division that have caused huge losses. The company said on Thursday that it had begun preliminary talks with various stakeholders, including partner banks and the German economy ministry. A spokesman for the ministry said it was “in close and trusting discussions” with Siemens Energy without providing further details.
The company’s management is seeking backstops for its order backlog and is considering options that would be needed to finance projects lasting years, according to a statement. “These measures include the assumption of financial risks by the German state or other parties, for example, banks,” it said. Guarantees are not uncommon for expensive and long-term significant projects. They typically cover advance payments made by customers or default risks and are usually arranged via banks. Siemens Energy’s problems are mainly due to the wind power division, which has had significant quality issues for several years and has caused losses in the billions.
Shares in the company spun off from former parent Siemens in 2020, fell as much as 39% to a record low last week after the talks became public. Investors were concerned that the problems at Siemens Gamesa, which accounts for more than half of the firm’s earnings, may spread to other divisions.
Germany’s Economy Minister Olaf Scholz defended the government’s decision to support the company, saying it was a significant industrial employer and that its business is “transformationally relevant for Germany as a location for the industry.” The junior Free Democrats partner in the coalition government criticized the prospect of state aid, however. The head of the Ifo Economic Institute, Clemens Fuest, said there was no convincing justification for a bailout. “The support means transferring taxpayers’ money to the creditors and shareholders, who should be liable,” he said.
Analysts say Siemens Energy still needs to sell a large volume of its existing equipment to reduce its debt load and meet its earnings targets for 2023. It is also expected to report a net loss for the current financial year, which ends on September 30, after a loss of up to 10 billion euros in the wind power division.
The wind turbine unit has a backlog of orders worth around 109 billion euros. Around half of that amount, or 15 billion euros, requires a backstop by the company or other parties, according to two people familiar with the matter. The sources asked not to be identified because of the matter’s sensitivity. It still needs to be determined whether the talks with the government will yield a solution. They are scheduled to continue on Monday. The Frankfurt-based publisher Wirtschaftswoche, which broke the news on Friday, reported that guarantees in the range of 15-20 billion euros could be involved. Its source also needed to be named.