Tata Steel is close to a deal with the government to keep its UK business rather than sell it off, which would secure the future of 11,000 workers and the Port Talbot steelworks.
Tata is in talks about a loan worth up to £1bn and a restructuring of the British Steel pension scheme which could shave billions of pounds off its liabilities.
The Indian company has been exploring the possibility of keeping the business for weeks and held talks on the matter with business secretary Sajid Javid, in Mumbai last week.
Although Tata Steel is continuing to run a sales process for the UK business, it was encouraged to work on keeping its operations by the package of support the government put together for potential buyers.
A source close to Tata said: “They have never stopped negotiating about staying. If everything works out they will stay.”
A deal could be announced by the end of June. Any loan between Tata and the government would be on commercial terms, but it could be a key in helping turn around the loss-making business. The Tata source said: “If it works then they [Tata] will make a profit; it doesn’t then they won’t be able to pay it back.”
A spokesperson for the Department for Business, Innovation and Skills declined to comment on talks, saying it was a commercial sales process. But the department reiterated that any government support for a buyer would be on commercial terms in order to comply with European state aid rules.
The deadline for buyers to make a formal proposal to buy Tata Steel UK was last week. Eight bidders are thought to be in the running, including metals group Liberty House, Excalibur, a management buyout backed by a Welsh consortium, Leeds-based private equity firm Endless, JSW Steel of India and US group Nucor.
However, the potential buyers are thought to be refusing to provide guarantees about how long they will keep the Port Talbot steelworks open, and want cash from Tata.
Javid has said the government is willing to offer hundreds of millions of pounds to a buyer of Tata Steel UK and restructure the pension scheme, which has liabilities of almost £15bn and costs more than £100m a year to support. However, it is not clear whether Tata will take up the government’s offer of taking a 25% stake in the business.
The plans to overhaul the pension scheme behind Tata Steel have been supported by the trustees despite warnings that the move would set a dangerous precedent.
The pension scheme is regarded as a hurdle to a rescue deal. The latest figures show the deficit has ballooned to £700m, up from £485m last year. The government has estimated it would cost £7.5bn to buy out the scheme’s benefits.
Under the government’s plan, drawn up with trustees, the scheme would be spun off into a new financial vehicle and benchmarked against the consumer price index (CPI) rather than the retail price index (RPI), potentially saving billions of pounds in future liabilities.
A consultation period has started and will end on 23 June.
When asked at a press conference last week about keeping Tata Steel UK, Koushik Chatterjee, executive director of Tata, did not rule it out and said the management team was still “looking at continuing and sustaining the business”. But he added: “I don’t think we have a case as yet.”
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