Tata Steel: government offers to part-nationalise UK plants

Houses of Parliament

A rescue deal for the Tata Steel plant at Port Talbot appears increasingly likely after ministers confirmed they were prepared to part-nationalise Tata’s UK business to attract a buyer in the coming weeks.

A new package announced by Sajid Javid, the business secretary, amounts to hundreds of millions of pounds in state support through loans, grants and a possible equity stake, raising hopes that up to 40,000 jobs could be saved.

The package was immediately welcomed by the two potential buyers – Liberty House and a consortium backed by the management – who said it made the prospect of a deal more attractive although talks are ongoing.

Javid had originally insisted that nationalisation was not an option and came in for severe criticism for his reluctance to interfere after Tata announced last month it was pulling out of UK steelmaking.

But the UK and Welsh governments jointly declared on Thursday that they would consider taking an equity stake of up to 25% in the steel plants, including Port Talbot in south Wales, amounting to part-nationalisation of the struggling industry. They are also offering debt financing at commercial rates and grants for equipment, which would probably make up the bulk of the financial support.

The offer was welcomed by Labour, the trade unions and industry bodies, who said it was an attractive sweetener. But they warned that the government would need to deal with the root of the crisis, which has been blamed on Chinese dumping of cheap steel products.

A source with knowledge of the negotiations said there were only two credible expressions of interest – from Liberty House and the management – but up to 200 investors had expressed interest in helping to finance the rescue.

The consortium behind the proposed management buyout, which includes Welsh billionaire Sir Terry Matthews, said the government’s offer made a rescue deal more attractive.

Steve Phillips, the chief executive of the Neath Port Talbot county borough council and spokesman for the consortium, said: “We think it is a positive step forward in the sense that it gives clarity.

“Our whole proposition is not without risk, but who can say theirs is without risk? All we are asking for is a level playing-field, and the government statement is a big step forward in that regard.”

A spokesman for Liberty said: “The UK government announcement is interesting and encouraging and will help our team with their analysis of the Tata opportunity, which is under way at the moment.”

Liberty is run by tycoon Sanjeev Gupta and has already bought rolling mills in Scotland from Tata.

The deal will also have to clear the European commission but industry sources said this was very possible given that any rescue package would be at commercial rates.

Speaking at a steel conference in Brussels, business minister Anna Soubry called for “overly strict” EU state-aid rules to be relaxed.

“When the UK looked at all of the options – and I do mean all the options – one of the biggest problems we had is making sure that any plans we have are compliant with state-aid rules,” she said.

“We have to look at state-aid rules to make sure that if we have an industry as vital as the steel industry is, in the particular and exceptional circumstances that it finds itself in, whether there should be some flexibility in what many people otherwise regard as overly strict state-aid rules.”

Soubry said a large number of buyers had expressed an interest in purchasing the entire Tata business but that its blast furnaces would “be the most difficult parts of the set”.

Ricardo Cardoso, a spokesman for the competition commissioner Margrethe Vestager, would only say: “We are in contact with the UK authorities on this issue.”

Javid will be hoping the announcement brings an end to criticism of him for failing to respond quickly enough to the crisis. He was away on a trade trip to Australia when Tata announced the withdrawal and initially ruled out nationalisation. The government later backtracked and said all possibilities were still on the table.

One Conservative source said he believed there had been a change of heart about the extent of government support because David Cameron feared being blamed for the collapse of British steel like Margaret Thatcher and the coal industry.

Outlining its package, the Department for Business, Innovation and Skills said its offer would be tailored to the purchaser’s strategy and financing needs. It is expected that the large majority of the help will be through the provision of debt financing but other options include hybrid convertible debt or a minority equity stake of up to 25%.

They are also working to find a solution to the burden of pension liabilities, which are worth almost £15bn and have put off potential buyers.

Stephen Kinnock, the Labour MP for Aberavon, said the main blueprint for rescuing Tata involves £1.5bn needed over 10 years, so a 25% of that is “helpful but quite a way short of what is required”.

He said a government grant for a generator with environmental benefits could end saving £20m to £25m on energy costs and end up being just as big a sweetener as the debt and equity.

The details of the package emerged after a second meeting between Javid and Cyrus Mistry, the Tata Global chairman in Mumbai. Javid said: “This government is committed to supporting the steel industry to secure a long-term viable future and we are working closely with Tata Steel UK on its process to find a credible buyer. The detail of our commercial funding offer is clear evidence of the extent of that commitment.”

Angela Eagle, the shadow business secretary, said the package was welcome but a long-overdue recognition of the need for government support for the sale process.

“Labour and the steel unions have been calling for action for weeks; this appears to be a step forward,” she said. “But this alone will not be enough to save the steel industry.”

Powered by Guardian.co.ukThis article was written by Rowena Mason, Graham Ruddick and Arthur Neslen, for The Guardian on Thursday 21st April 2016 19.12 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010


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