Germany's federal government will acquire a 40% stake in shipbuilder Meyer Werft for around €200 million, the Economy Ministry said on Friday.

The state of Lower Saxony will also buy a 40% stake, providing much needed support to the indebted company.

New loans, worth €2.6 billion, are equally being discussed for Meyer Werft.

The federal and state governments have agreed to cover 80% of the value of the loans, while banks must assume the remaining 20% at their own risk.

Germany's lower house of parliament, the Bundestag, and the European Commission must approve the deal before it can go ahead.

Last month, Chancellor Olaf Scholz visited Meyer Werft's Papenburg-based shipyard in northwestern Germany as reports of the company's distress circled.

German media reports suggested that the firm, which employs over 3,000 people in total, needed €2.3 billion in working capital and €400 million in equity to cover losses and restructuring costs.

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Meyer Werft's financial woes are partially linked to how ship building is financed, rather than a lack of demand.

On 12 August, the firm shared that it had secured a new agreement with Disney Cruise Line, meaning that it now has eight Disney ships in its order book. 

Before this, the company said it had full order books through to 2028.

It is, however, common practice for ship buyers to pay 80% of their fees upon delivery, meaning that manufacturers must hold cash reserves to cover construction costs.

Meyer Werft's cash cushion was hit hard by dampened demand linked to the pandemic.

Added to this, Covid-19 caused a spike in the cost of materials and labour, further eating into the ship builder's finances.

"It's the firm determination of the government - of me personally and of my ministry, which is doing the work here - that Meyer Werft gets the support it requires to continue to build ships," Economy Minister Robert Habeck said on Friday.

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