Swedish start-up Stegra is battling to avoid becoming the second multibillion-euro European green industrial project to fall into insolvency in a year.
The green steel company, which has raised $6.5bn in debt and equity, is on the ropes 11 months after battery start-up Northvolt, launched by the same Swedish financiers, went bankrupt despite raising $15bn.
While Stegra executives have told its board that “we must avoid parallels with Northvolt”, according to people familiar with the discussions, the similarities are hard to ignore as the company struggles in the face of a sudden crisis.
Stegra’s funding gap for its first green steel plant just below the Arctic Circle in Sweden has jumped to as much as €1.5bn from about €500mn as recently as July, executives told an emergency board meeting this month.
Several equity investors and multiple creditors are getting twitchy. Stegra will hold a crunch meeting with its lenders on Tuesday, several people familiar with the matter said.
Citibank is seen by Stegra, formerly known as H2 Green Steel, as particularly problematic as it has put its loans of about €29mn to the steel start-up in a workout group, according to people familiar with the matter who say some other banks share Citi’s concerns and have put Stegra into “special measures”.
“This looks more and more like Northvolt. It is hard to see anything else than equity investors getting all but wiped out,” said one person familiar with Stegra’s financing.
Lawyers from Mannheimer Swartling, one of Sweden’s leading law firms, told the emergency board meeting about the risk of insolvency and the various tests directors should apply to determine it.
They said Stegra should hold board meetings more regularly — as often as each week — to monitor its financial situation and especially its liquidity, people familiar with the meeting told the Financial Times.
The lawyers added that a board meeting should be held far enough in advance of the 12th of each month to decide whether social security fees should be paid, and also sufficiently before the 25th of each month to decide whether to pay wages, the people said.
Henrik Henriksson, Stegra’s chief executive, told the FT last week that he did not recognise “the very one-sided picture conveyed”. Stegra said on Monday it was “confident that our ongoing financing round, including opportunities for outsourcing and selected strategic partnerships, will be secured in an orderly fashion”.
It has started a new financing round aimed at raising almost €1bn and said that it had received “strong initial equity commitments from our founders and lead investors” including Altor, Just Climate, a Wallenberg family foundation and co-founder Harald Mix. “We have several avenues to pursue to manage our cash position,” it added.
But behind the scenes, Stegra is fighting to survive. A decision this year to delay a galvanisation line reduced its funding needs by about €140mn but will also lead to later deliveries for 15 of its 21 long-term customers including Volvo, Porsche and Scania, people familiar with its financing said.
People close to the company, however, said the delay would have no significant impact on customers.
Stegra is also discussing outsourcing several parts of its steel plant in Boden — which is about 60 per cent complete but has been subject to several delays — including its hydrogen and electricity plant assets, according to executives.
Such plans — to sell, and lease back or buy them as a service — could save as much as €1.3bn in capital expenditure but are likely to take until next April or May to conclude, according to information shown to the board.
It is far from clear that Stegra has that much time. The emergency board meeting two weeks ago was told that as the Boden project was consuming about €280mn a month in cash, the company only had about 1.7 months of liquidity left unless it could draw down more debt.
People familiar with its financing said that to unlock that debt Stegra needed to raise more equity, and that some investors were balking at that. Stegra said it was in talks with both existing and new investors, and was optimistic of a successful outcome.
Its funding gap — judged in July to be about €500mn — is now €1.2bn under its central scenario and €1.5bn under its worst-case scenario, according to information prepared for the board meeting.
Stegra has in recent weeks hired restructuring specialists PJT, just as Northvolt did, people familiar with the appointment said.
Both Northvolt and Stegra were started by Vargas, a Swedish private equity firm founded in 2014 by financiers Harald Mix and Carl-Erik Lagercrantz with a goal of decarbonising 1 per cent of global emissions through its projects.
Stegra’s lead shareholders include Swedish private equity group Altor, French investor Hy24, Singaporean sovereign wealth fund GIC, and fund manager Just Climate as well as Mix and Vargas.
Stegra announced on Monday that it would replace co-founder Mix as chair with Shaun Kingsbury, co-chief investment officer of Just Climate.
The start-up’s biggest creditors include the Swedish Export Credit Corporation, investment managers AIP, the European Investment Bank, and European banks including ING, BNP Paribas and Santander, the people added.
Another similarity with Northvolt appears to be an unwillingness from the Swedish government to help out. Stegra executives blame Sweden’s refusal to disburse €165mn in aid approved by Brussels for part of its predicament. Northvolt ended up in bankruptcy only weeks after the government explicitly ruled out stepping in to help.
Northvolt’s assets in northern Sweden, about 125km from Stegra’s, may be revived after US battery start-up Lyten bought them out of bankruptcy at a steep discount.
Among Stegra’s backers, there is debate about how its predicament compares with Northvolt. “Everybody is very quick to say it is Northvolt mark two. But if you have something of value, you can raise money off it. That is a fundamental difference to Northvolt,” said one.
But another suggested that the best outcome would be for a bigger steel company to buy the assets “and run this properly”.
Either way, the struggles of another great hope of sustainable European industry raise serious questions both for policymakers and investors about Europe’s green transition.
“It does not look pretty,” said one Nordic minister.