UK government agrees £300m rescue package for British Steel

The government has moved to rescue British Steel with a financial support package worth as much as £300m that ministers believe will be enough to secure backing from a private bidder. It is understood that the Department for Business, Energy and Industrial Strategy (BEIS) has agreed to substantially increase support to bidders for British Steel, which employs more than 4,000 people, after months of wrangling following the company’s collapse into administration. The rescue package will include beefed-up grants, indemnities and loans that could be worth as much as £300m, according to sources quoted by Sky News.Turkish pension fund is considered to be the frontrunner to takeover the company’s main plant in Scunthorpe and subsidiaries across Teesside, although a consortium which includes a leading civil engineering firm working in west Africa is also in the running after making a late bid. Despite the late interest from elsewhere, the business secretary, Andrea Leadsom, is expected to approve exclusive talks with Ataer Holdings, a subsidiary of the Turkish military pension scheme Oyak. An announcement that Ataer has won preferred bidder status could be made by the government’s official receiver David Chapman and EY, which is managing the sale, as early as next week. Ataer is believed to be the frontrunner after it committed to keeping all parts of the steel company together. While the plant in Scunthorpe makes up the vast majority of British Steel’s operations, the government has so far expressed a preference for selling the company as a single entity, including satellite operations in areas such as Teesside. Quick guide What went wrong at British Steel?

When Greybull Capital bought British Steel in 2016 it promised great things. The private equity firm pledged to invest £400m and within months it was boasting of a return to profit and a bright future ahead. Three years later it collapsed. In a letter to staff, the British Steel chief executive blamed weak market demand, high raw material prices, the weakness of sterling and uncertainty over the outcome of Brexit discussions.

How much is Brexit to blame?

It is not the only factor in the crisis but it is very important. Steel contracts are typically agreed well in advance of the product being delivered. As things stand, the UK is due to leave the EU on 31 October and the terms of that separation are yet to be agreed, meaning British Steel’s overseas customers do not know what tariffs will apply to steel they buy from the company. Sources close to the company said orders from customers in the EU and further afield have dried up as a result.

Can the company survive in some form?

While many of the fundamental problems affecting it remain, the prospective new owners, the Turkish military pension fund Oyak, appear committed to investing in expanding production and preserving large numbers of jobs – a key priority for the government. British Steel accounts for a third of UK production, so is seen as a key national asset in many quarters.

Is the whole UK steel industry in trouble?

The UK steel industry has been in decline for some time because of a variety of factors such as overcapacity in EU steelmaking and Chinese state-subsidised firms flooding the global market with cheap product. An industry that employed 323,000 people in 1971 now employs less than a tenth of that, at 31,900. The closure of the Redcar steelworks in 2015 was a significant blow to the sector and left the UK with only two blast furnace steelworks: Scunthorpe and the Tata Steel-owned Port Talbot in south Wales.

Was this helpful?

 

The government has already provided a £120m loan to British Steel to help meet its obligations under an EU carbon credits scheme for industrial polluters. Nevertheless, the firm is understood to be losing £5m a week.

The Guardian has approached EY and BEIS for comment.

Earlier this week, BEIS said: “This government will leave no stone unturned to get a good solution for British Steel at Scunthorpe, Skinningrove and on Teesside.”

If discussions with Ataer break down, three bidders are waiting in the wings: Liberty House, led by Indian-born metals tycoon Sanjeev Gupta; Greybull Capital, the investment group which owned British Steel when it collapsed; and the west African consortium led by an as-yet unnamed civil engineering firm.

While not revealing its identity, the firm said it would not require any government assistance or grants, unlike some of the rival bids.

“The consortium is working on a long-term massive infrastructure project in west Africa,” said a source close to the company, which has masked its identity. “The successful purchase of the Scunthorpe site would mean an export opportunity of steel to this project – with immediate effect.