Why Shares Of This German Firm's India Unit Are Crashing Today

Shares of Siemens Ltd were crashing on Tuesday on reports that its German parent was mulling a stake sale in the Indian unit.

What Happened: Siemens Energy AG is contemplating a significant divestment of its 24% stake in the Indian affiliate Siemens Ltd, which is listed on the Mumbai stock exchange, Bloomberg reported, citing sources.

The potential sale to its former parent, Siemens AG, is part of Siemens Energy’s strategy to strengthen its balance sheet and may be officially announced this week. The shares are currently valued at around $3.5 billion (₹29,140 crore). Siemens AG already holds a majority share of 51% in the Indian business.

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Why It Matters: In parallel, Siemens Energy is under pressure from the government to provide crucial loan guarantees for future major projects. Discussions are ongoing, and a solution is emerging that would involve state-backed guarantees for Siemens Energy, supported by guarantees from Siemens, the largest shareholder.

Siemens Energy confirmed its discussions with the government regarding loan guarantees to Bloomberg. It is seeking backing of up to 16 billion euros (₹1.4 lakh crore) for upcoming projects, and Siemens’ potential contribution, if agreed upon, could amount to several billion euros.

While the government is reportedly willing in principle to commit up to 8 billion euros (₹70,000 crore) in guarantees, Siemens and banks are expected to cover the remaining portion of the guarantees.

Financial support is increasingly vital for Siemens Energy, especially after forecasting a 4.5 billion euro (₹40,000 crore) loss for fiscal 2024 earlier this year, despite efforts to address issues with specific wind turbines at the division. S&P downgraded the company’s credit rating to BBB- with a stable outlook in July, from BBB with a negative outlook.

Price Action: Siemens Ltd’s share price plummeted 4.7% to ₹3,269.30 in morning trade on Tuesday.

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