Centrica Seeks Billions in Additional Funding as Collateral Requests Soar
British Gas owner Centrica is in talks with banks to secure billions of pounds of additional credit to meet growing demands for guarantees due to extreme volatility in energy markets.
People familiar with the talks called the FTSE 100 company’s request for additional short-term funding “pre-emptive” in case the situation deteriorates.
The move by Britain’s biggest supplier of gas and electricity to households is the latest sign of tensions spreading in the energy sector as cuts in gas supplies from Russia to Europe spike wholesale prices.
The sums that power generators across Europe are required to post as collateral with exchanges have risen as wholesale prices continue to rise, with Finland’s economy minister warning the problem could deteriorate into the “power sector version of Lehman Brothers”.
Finland and Sweden both announced emergency financial measures for their electricity producers over the weekend to prevent a liquidity crisis from crippling their electricity markets and spilling over to the sector. financial. Gas prices in Europe jumped 20% on Monday, with Russia saying the Nord Stream 1 pipeline was unlikely to restart unless Western sanctions were lifted.
Centrica’s request for additional financing from banks could put pressure on Liz Truss, the new British Prime Minister, to consider additional short-term financial assistance for the energy sector.
Energy UK, the industry body representing around 100 energy companies, appealed to the government for help on Sunday saying it was “really concerned about the situation this winter with regard to [financial] liquidity”.
Centrica’s attempt to secure additional short-term loans sheds light on the type of sums utilities need to release with exchanges.
Three years ago, the company announced that it had obtained a £4.2 billion committed revolving credit facility with 21 banks that would run until at least 2024. Energy traders say companies in the sector are close to tapping their lines of credit.
A person familiar with the situation said Centrica’s approach mirrored chief executive Chris O’Shea’s “conservative” approach to balance sheet management. Another said he was born out of an “abundance of caution”. Centrica declined to comment.
Eurelectric, which represents 3,500 European utilities, warned on Monday that the sharp rise in warranty claims faced by power generators was “a serious concern”. Its secretary-general, Kristian Ruby, has called for companies to be allowed to provide non-cash collateral, such as bank guarantees, to avoid a cash crunch.
RBC Capital Markets analysts have warned that “even the most powerful utilities are facing enormous pressure in terms of guarantee payments”.
Energy companies across Europe, and in particular Germany, have scrambled to secure additional liquidity facilities from banks this year as their demands for guarantees increase, according to people familiar with the funding.
The facilities typically last between 12 and 24 months and are designed to be drawn in place of corporate standby revolving credit facilities, or as an additional buffer if those corporate lines of credit are fully drawn, said one of the people.
So far, bankers have been willing to respond to customer demands as most energy providers have investment grade credit ratings and they expect strong support from governments at l state, the sources added.
However, even the additional facilities have not been enough to cover the snowballing margin needs of some energy companies that are simultaneously seeking expensive alternative supplies of non-Russian gas.
In July, the German government agreed to a €15 billion bailout for Uniper, Europe’s largest buyer of Russian gas, after drawing the full line of a €9 billion credit line from the public development bank KfW lifted in January.
Uniper’s majority owner, Finland’s Fortum, recently warned that its collateral requirements had risen from €1 billion to €5 billion in a single week.