Shareholder unrest Cities Threaten to Ditch RWE Stakes

City municipalities own almost 24 percent of shares in RWE and are disappointed at the struggling utility’s decision to not pay a dividend for 2016. Some are now considering selling up.
Quelle: dpa
The city of Essen, dominated by the RWE Tower, may sell its stake in the utility.
(Source: dpa)

Utility RWE has been based in the city of Essen, in the heart of the industrial Ruhr region of western Germany, ever since the company was founded in 1898. Back then, the mayor joined the supervisory board, and for the past two decades, the 127-meter RWE tower has dominated the city’s skyline.

But as Germany’s expanding production of solar, wind and other renewable energy sources continues to weigh on RWE’s earnings, even Essen is considering selling its 3 percent stake in the firm.

“The city administration has been in discussions since last year about whether there’ll continue to be a shareholding in the company in the future or what it could look like,” mayor Thomas Kufen said on Wednesday.

The city could conceivably transfer its stake to RWE’s renewable energy business, Innogy, part of which was listed last October.

The fact that RWE is omitting its dividend payout again is not a good signal to the municipalities. Thomas Kufen, Mayor of Essen

Essen’s decision to weigh the future of its stake is making it more difficult for RWE’s municipal shareholders to keep their block of shares together. At present, they still hold a combined stake of just under 24 percent. Last year the city of Bochum, which neighbors Essen, sold its RWE shares and other cities and local authorities in the region are considering following suit.

RWE Chief Executive Rolf Martin Schmitz on Wednesday gave them further cause to do so.

The company recorded a net loss of €5.7 billion, or $6 billion, for 2016, due to €4.3 billion of writedowns on power plants in Germany, Britain, the Netherlands and Turkey. It also had to set aside €1.8 billion to cover future nuclear waste storage.

As if that weren’t enough, RWE’s fresh losses forced it to abstain from a dividend on its ordinary shares, the second consecutive year ordinary stockholders will not get any payout. Preferred shareholders will receive a dividend for 2016 of €0.13 per share.

“The fact that RWE is omitting its dividend payout again is not a good signal to the municipalities — and that goes for the city of Essen as well,” said Mr. Kufen.

"You can assume that we are deeply disappointed," said Ernst Gerlach, head of VkA, which represents the municipal shareholders.

The municipalities had expected a payout of at least 30 cents per share, in line with market forecasts. The successful partial flotation of Innogy had fuelled hopes of a payout, generating €2 billion for investment at Innogy and some €2.6 billion for its parent to pay down debt.

“The difficult market environment made impairments necessary. In addition, the nuclear energy fund imposed a substantial one-off burden on us,” Mr. Schmitz said in a statement. These effects had forced the management board to skip the dividend again.

RWE, like E.ON and other utilities, is suffering from a collapse of wholesale electricity prices due to the glut of renewable electricity.

Paying out a dividend would also have been politically unwise, said sources close to the company, because RWE had told the government during negotiations on setting up a government-controlled nuclear storage fund that it had a weak capital base. Resuming a dividend so soon would have looked bad.

“We expected a lower dividend for all shares but not a complete omission of the dividend for ordinary shares,” said the mayor of Mülheim an der Ruhr, Ulrich Scholten. His city, also near Essen, has some 8.9 million ordinary shares and 930,000 preferred shares. The omission means the city’s budget now lacks some €1.15 million. Finding that money elsewhere in the budget was a “challenge,” he said.

Mr. Schmitz promised that RWE would resume its dividend for 2017 and was aiming for a payout of 50 cents, which he said would also be the minimum for the following years.

Guntram Pehlke, the head of the public services company for the city of Dortmund, which owns the biggest single municipal stake in RWE, welcomed that pledge. “We haven’t had so much planning certainty for a long time,” he said.

Unlike Essen, Dortmund has no plans to sell its stake in RWE.

 

Jürgen Flauger covers the energy market for Handelsblatt, including electricity and gas providers, international market developments and energy policy. To contact the author: [email protected]