British Steel, the country’s second largest steel producer, is on the brink of collapse unless the government agrees to provide an emergency 30 million pound ($38 million) loan by later on Tuesday, two sources close to the situation said.
Owned by investment firm Greybull Capital, British Steel employs around 5,000 people, mostly in Scunthorpe, in the north of England, while 20,000 more depend on its supply chain.
Greybull, which specialises in trying to turn around distressed businesses, paid former owners Tata Steel a nominal one pound in 2016 for the loss-making company which they renamed British Steel.
British Steel had asked the government for a 75 million pound loan but has since reduced its demand to 30 million pounds after Greybull agreed to put up more money, according one of the sources, who is close to the negotiations.
Greybull was also the owner of Monarch, an airline that went bust here in October 2017.
If the British Steel loan is not approved by Tuesday afternoon, administrators EY could be appointed as early as Wednesday, the source said.
British Steel and Greybull both declined to comment.
“There have been ongoing discussions with the company and I am sure the House (of Commons) will understand that we cannot comment at this stage,” Andrew Stephenson, a junior business minister, told lawmakers in parliament.
“I can however assure the House that, subject to strict legal bounds, the government will leave no stone unturned in its support for the industry.” Stephenson said the government had been in contact with former British Steel owners Tata Steel.
STEEL INDUSTRY SUFFERS
The second source said British Steel lost the backing of one of its four big lenders earlier on Tuesday, while some of the others had already exited.
“The (company’s) cash was not big enough to sustain even one bank pulling the plug,” he said.
The possible collapse of British Steel comes after Germany’s Thyssenkrupp and India’s Tata Steel ditched a plan earlier this month to merge their European steel assets to create the EU’s second largest steelmaker after ArcelorMittal.
The collapsed merger leaves the wider EU steel sector fragmented and vulnerable to economic downturns. It also calls into question the fate of Britain’s largest steelworks in Port Talbot, Wales, owned by Tata Steel.
British steel firms pay some of the highest green taxes and energy costs in the world, and are also saddled with high labour and logistics costs, as well as uncertainties surrounding Britain’s planned exit from the European Union.
After making a profit in 2017, British Steel cut around 400 jobs last year, blaming factors such as the weak pound.
Earlier this month, it appeared to have secured the backing of lenders and shareholders to continue operating after the uncertainty around Brexit hammered its order book, with customers recoiling from the possible threat of tariffs.
The company also secured a government loan of around 120 million pounds ($154 million) at the start of the month to enable it to comply with the European Union’s Emissions Trading System (ETS) rules.
“The collapse of British Steel would be devastating for thousands of jobs in Scunthorpe, as well as in the wider supply chain,” opposition Labour leader Jeremy Corbyn said on Twitter.
“The government must act to secure the long term future of the steelworks – protecting people’s livelihoods and the community.”
The second source said the British government was reluctant to hand over more cash, because Greybull could end up with the funds if the business fails.
“Greybull could walk out with millions because they secured all their loans against the assets. At the holding level, Greybull are the only creditor. The government wants Greybull out before putting money into the business,” he said.
“Its going to be difficult to survive this afternoon,” he added.
The UK government has a chequered history with Greybull, after the collapse of Monarch in 2017 forced it to repatriate more than 100,000 stranded tourists at a cost of about 60 million pounds.
The Mayfair-based firm also provided backing for the buyout of British high street electronics chain Comet before its collapse in 2012.
Unions demanded the government give British Steel the loan.
“They must now put their money where their mouth is,” said Ross Murdoch, national officer for the GMB union for steelworkers.
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