By Essi Lehto and Anne Kauranen
HELSINKI (Reuters) -Finland's Fortum said on Tuesday it had signed a bridge financing arrangement with Finnish government investment company Solidium for 2.35 billion euros ($2.34 billion) to cover soaring collateral needs in the Nordic power derivatives market.
European countries are stepping up efforts to shore up power firms after Russia shut down the major Nord Stream 1 gas pipeline, worsening the continent's electricity crisis.
The bridge loan to Fortum, which carries a steep 14.2% interest rate, comes on top of a 10 billion euro government package of credit for the Finnish power industry announced on Sunday.
"The conditions are harsh if you compare them with the price of financing otherwise and with the arrangements of other countries, but I'm satisfied that this facility exists," Fortum Chief Executive Markus Rauramo told Reuters.
"We still have buffers even without this, and it gives us a lot more leeway," he said, adding that the bridge funds would only be used as a last resort.
Fortum's collateral tied up on Nasdaq amounted to around 3.5 billion euros as of Monday's market close, far above historical levels but down from the roughly 5 billion requirement on Aug. 26 as power prices had retreated somewhat.
Rauramo declined to say how much the collateral requirements would have to rise before Fortum would need to use the loan.
European nations accuse Russia of weaponising energy supplies in retaliation for Western sanctions imposed on Moscow over the war in Ukraine and putting a heavy strain on utilities.
Russia says the West has launched an economic war and sanctions have caused the gas supply problems.
Fortum has said its main derivatives exposure on Nasdaq Clearing relates to Nordic system power price contracts for 2023.
The industry's overall requirement for collateral in the Nordic power derivatives market recently hit 180 billion Swedish crowns ($16.7 billion), up from 25 billion in normal times after power prices rose 1,100%, Sweden's debt office said on Saturday.
"Stabilising Fortum's financial position in the current market situation is understandably in the interest of the state owner," Solidium Chief Executive Reima Rytsola said in a statement, adding that the loan was "exceptional".
While parliament began to process legislation for the 10 billion euro package on Tuesday, the government said it wanted to make sure that an immediate solution was in place for Fortum, thus adding the 2.35 billion loan.
"This arrangement has been done precisely for if a critical situation would emerge, this funding would be drawn immediately," senior financial adviser Maija Strandberg of the government's ownership management department told Reuters.
The terms of the loan secured by Fortum stated that it could only be used for units in the Nordic region, and not to prop up its subsidiary Uniper, which has sought a multi-billion euro bailout from the German government.
"The arrangement is aimed at strengthening Fortum's liquidity reserves and thereby securing Finnish energy supply," the government said in a separate statement.
The first instalment of the one-year loan would be 350 million euros and needs to be withdrawn by Sept. 30 for the arrangement to remain effective, Fortum said.
The company may ultimately manage without the bridge financing, however, as it still has some 5.5 billion euros in other undrawn facilities, Danske Bank's head of credit research Jakob Magnussen said.
"We see the need, and risk, of Fortum utilising this government sponsored back-stop facility as rather remote," he wrote.
Solidium would also get an option to buy 1% of Fortum's shares, raising the state's stake to 51.26%, the power company said.
($1 = 1.0042 euros)
($1 = 10.7520 Swedish crowns)
($1 = 0.9805 Swiss francs)
(Reporting by Essi Lehto and Anne Kauranen; Additional reporting by Stine Jacobsen and Anna Ringstrom; Editing by Terje Solsvik, Emelia Sithole-Matarise and Jan Harvey)