The Croatian Government announced its intention to provide a shareholder loan to state-owned power utility HEP and to initiate a capital increase process.
The state will provide HEP with a shareholder loan of 400 million euros in order to stabilize the company’s business and will recapitalize the company with additional 500 million euros. The loan will be paid out in two tranches: 265 million euros upon signing and 135 million euros no later than July, with an annual interest rate of 4.5 %.
The loan matures for repayment two years after the use of the second tranche, and it can be repaid by converting the principal into share capital equity investment, or by other means. HEP will provide six promissory notes and one bond as collateral for the loan.
The Government’s decision states that the Ministry of Economy will take all necessary actions with the intention of capitalizing or increasing the company’s capital by cash and equity investment to the total value of up to 900 million euros. The entire process is conducted in consultation with the European Commission because of the state aid rules.
Prime Minister Andrej Plenkovic said that, in this way, the Government is sending a message that, as a strategic energy company, HEP will remain 100 % state-owned and will not be privatized. The loan decision will be implemented through a modification, not payment, of the state guarantees for the consortium of banks that approved HEP’s loans last year for energy procurement and natural gas purchase financing.
The company borrowed one billion euros with state guarantees as of summer 2022. The Government approved a loan of 600 million euros in July 2022, with state guarantees of 480 million euros. The loan will mature in January 2024. Another loan of 400 million euros was also signed with state guarantees for the purpose of purchasing gas to fill the Okoli underground gas storage. That loan will also mature in January 2024. The repayment of this loan (which was used up to the level of 294 million euros) was conditional on the sale of the gas reserve in the Okoli facility, which HEP has not sold nor has information on when it could be sold or used. The Okoli storage is currently 75.5 % full, far above the EU average, which is currently at 55 %. Following the Government’s decision, the state will reduce the state guarantee to the stated amount and extend the repayment period for another 24 months.
Therefore, the Government is providing the company with additional liquidity to repay debts to suppliers that it is unable to pay due to state imposed energy price limitations. However, this is not the end of meeting HEP’s liquidity needs, especially since price regulation under the Government’s supervision continues, and the market situation remains volatile. The capital increase will obviously solve part of the problem, and there has been speculation for some time that pension funds will capitalize the company.
The natural gas price will remain regulated for another year, and the electricity price will be regulated until 30 September. The regulation of oil derivatives prices will also continue. PM Plenkovic reminded that the fourth package of measures to protect citizens and the economy would come into force on 1 April.
