Frankfurt According to financial circles, Germany’s fifth-largest energy group Steag is considering selling its renewable energy business or, if possible, even the entire company. The utility wants to take advantage of the current special boom in the energy market and enable its municipal owners to exit without losses, as several people familiar with the matter told the Handelsblatt.
An investment bank is to be mandated shortly and potential bidders will be approached in the autumn. The company with 377 million euros in earnings before interest, taxes, depreciation and amortization (Ebitda) last year could be valued at over two billion euros in a deal.
Steag explained that a professional sales process is to be started shortly. “It is the company’s declared goal and decision that Steag should be sold as a whole, divided into two subgroups that are separate in terms of organization, personnel and company law, and not in parts.” According to financial circles, however, there is little interest for the entire group, which is why the Possibility of a partial sale is being explored.
The liabilities of the Essen company are enormous: at the end of 2021, Steag had net debt of 485 million euros and 1.23 billion euros in pension provisions. Steag belongs to the municipalities of the Ruhr area: the owner is the municipal holding company (KSBG) of the municipal utilities of Dortmund, Duisburg, Bochum, Essen, Oberhausen and Dinslaken, which also owes 330 million euros to banks. The KSBG was initially not available for comment.
Top jobs of the day
Find the best jobs now and
be notified by email.
Steag and KSBG had agreed on a restructuring plan with their creditor banks in autumn 2021 after losses were piling up. A net loss of 170 million euros came together in 2020 – also due to the energy transition and the politically enforced move away from fossil fuels, Steag’s main business. Among other things, the agreement provides for the sale of the company by the end of 2023.
In view of the enormously high gas and electricity prices, the Steag owners now want to take advantage of the good market situation and try to sell quickly and at a high valuation.
Coal-fired power plants find no interested parties
While buyers are queuing up for wind or solar parks, biogas and geothermal plants as well as waste-to-energy plants – i.e. the “green” part of the company – the “black” part, i.e. the coal-fired power plants, is considered hard to sell. Both parts generate about the same amount of profit. But many investors and the financing banks reject coal commitments from a sustainability perspective.
At the same time, 1,900 of the 5,700 employees work in the “black” part of Steag, and employee representatives fear that the coal-fired power plants would be wound up quickly if only the “green” part were sold.
According to financial circles, Steag now wants to sound out the market in the fall. She wants to find out whether the entire company could be sold and what prices could be achieved in a partial sale and a total sale. So-called terminal value investors, who take over Steag cheaply and make a bet on making sufficient profits with the income until the coal activities are finally shut down, could be considered as possible buyers for the entire company.
After the exploratory phase, an auction process is to start either just for the “green” Steag or for the entire company. Investment bank Morgan Stanley is considered a favorite for the sales advisor post, but Macquarie is also credited with opportunities. It is said that no decisions have been made so far.
The energy group belongs to the Ruhrgebiet Stadtwerke, which would like to turn their shares into money.
(Photo: STEAG)
A possible takeover of the coal business by a foundation owned by the federal government is also under discussion. Advantage of such a solution: the state would have a power plant reserve, could thus contribute to energy security and would also have the freedom to shut down the blocks once the energy market has freed itself from dependence on Russian gas and has reorganized itself.
In the meantime, hard coal-fired power plants from other providers could also be included in the foundation. However, it is considered a challenge to reconcile such a variant with EU state aid law, even if the KSBG could give a dowry.
The timing for the upcoming sale is considered favorable. Steag is currently making good money with its coal-fired power plants, which the company can run longer than originally planned in view of the gas crisis. Originally, Steag in Germany only wanted to have its modern Duisburg-Walsum 10 coal-fired power plant connected to the grid from November 2022 and was considering converting the plant to CO2-neutral wood pellets.
Power plant units at the Bergkamen and Völklingen-Fenne sites were to be shut down. Now it is being discussed that these power plants should run longer and that the power plants in Weiher and Bexbach should also be taken out of the grid reserve. Steag could thus provide a total of 2.3 gigawatts of output from November. “In the current financial year, the Steag Group’s EBITDA has developed significantly better than planned in all segments of green and black and will – as of now – significantly exceed the previous year’s figure of EUR 376.8 million for the full year 2022,” said a Steag spokesman . The black area benefits disproportionately from the current market environment.
Steag has hardly any funds for renewable energies
In the medium term, however, Steag faces the challenge that Germany decided in 2020 to completely phase out coal-fired power generation by 2038 for climate protection reasons. While corporations like RWE are investing massively in wind power and solar systems, debt and pension obligations are restricting Steag’s scope for action in the field of renewable energies. In order to rehabilitate its balance sheet, Steag has already taken the first steps and started to separate peripheral areas. In Romania, the company sold a wind farm to local competitor Hidroelectrica. In Poland, Steag has put its district heating network up for sale but has not yet found a buyer. According to the Steag spokesman, there are serious and economically strong prospective buyers.
The Ruhrgebiet Stadtwerke bought Steag in 2010 for more than 1.2 billion euros from the chemical company Evonik. A plan from last year to transfer the company to the RAG-Stiftung failed because of the banks’ veto. The RAG-Stiftung finances the subsequent costs of hard coal mining and generates its funds, among other things, from its participation in Evonik and the robot manufacturer United Robotics.
More: Energy group Steag secures a three-digit million amount for electricity transactions