Tata Steel closes in on funding deal for UK business

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A rescue deal for Britain’s largest steelmaker is set to be agreed with the government within days, helping preserve about 8,000 jobs in an industry that had been struggling even before the coronavirus crisis.

The impending state loan worth hundreds of millions of pounds for Tata Steel’s UK operations — which include its sprawling complex at Port Talbot in south Wales — is due to be the first major transaction under the government’s “Project Birch”.

Chancellor Rishi Sunak authorised the project during the pandemic as a means of rescuing strategically important companies through bespoke funding arrangements.

Businesses need to have exhausted all other possibilities, including the government’s emergency Covid-19 loan schemes, from which some companies, including Tata Steel, have struggled to secure debt. 

Tata has been seeking a state loan worth £500m, according to Stephen Kinnock, Labour MP for Aberavon, where the Port Talbot complex is located.

Government officials have discussed a mechanism under which some of the debt due to be provided to Tata in the rescue deal could be converted into equity under certain circumstances.

This would mean the state could end up with a stake in the UK steel industry for the first time since British Steel Corporation was privatised more than 30 years ago.

But the government is not keen to take stakes in companies under Project Birch, and Mr Sunak’s allies have said previously the preferred option would be to provide loans to businesses that ensured taxpayers were at the top of the hierarchy of creditors.

Ministers have also insisted on other stringent conditions to protect taxpayers.

Tata Steel, which is controlled by the eponymous Indian conglomerate, is expected to sign up to various commitments to its 8,000 strong UK workforce and to cut carbon emissions in return for the state loan.

Several Whitehall and industry figures said Tata had submitted its loan application to the government and the two sides were closing in on an agreement — with growing confidence that it would be finalised within a week. 

Mr Kinnock said time was running out for the government to announce any rescue deal.

“Frustration levels are boiling over now. It is deeply troubling that the government loans have not yet materialised,” he said. “The government really needs to understand the cost of doing nothing.”

One government figure said that the rescue deal for Tata Steel’s UK operations was still not quite over the finishing line. “This could still fall apart,” he added.

As well as Port Talbot, Tata has UK operations elsewhere in Wales, as well as in Corby and Hartlepool. 

The British steel industry has lurched from one crisis to another in recent years, hurt by high costs of production, a legacy of under-investment and intense international competition. 

The temporary closure of swaths of the UK economy due to the lockdown has hit demand for steel from British carmakers and construction sites. 

The UK operations of Tata Steel have struggled to generate a profit for years. In its last published results, for the year to March 2019, the British business recorded an operating loss before one-off items of £157m. This followed a loss of £48m in the previous year.

Tata Steel, which has operations spread across the world, including in the Netherlands, said: “Our position continues to be that we have been [seeking] and continue to seek government support in the UK, the Netherlands and all geographies we operate in. It would not be appropriate to comment on ongoing discussions with governments.”

The UK Department for Business, Energy and Industrial Strategy said: “We are in regular discussions with companies across a range of sectors. We do not comment on the commercial or financial affairs of individual companies.”

 



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