A general view of the entrance to the British Steel Special Profiles works on May 21, 2019 in Skinningrove, England. Picture: GETTY IMAGES/IAN FORSYTH
A general view of the entrance to the British Steel Special Profiles works on May 21, 2019 in Skinningrove, England. Picture: GETTY IMAGES/IAN FORSYTH

London — British Steel, the UK's second-biggest steel producer, was in danger of collapsing on Tuesday if the government did not agree to provide an emergency £30m loan,  said two informed sources.

Owned by investment firm Greybull Capital, British Steel employs about 5,000 people, mostly in Scunthorpe in the north of England, and 20,000 more depend on its supply chain.

Greybull, which specialises in turning around distressed businesses, paid former owners Tata Steel a nominal £1  in 2016 for the unprofitable company, which they renamed British Steel.

British Steel asked the government for a £75m loan but later reduced its demand to £30m 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 in October 2017.

If the British Steel loan was not approved by Tuesday afternoon, administrators EY could be appointed as early as Wednesday, the source said.

British Steel and Greybull refused 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 MPs.

“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 Tata Steel.

Steel industry suffers

The second source said British Steel lost the backing of one of its four big lenders earlier on Tuesday. Some of the others had already pulled out.

“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 in May 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 downturn. 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 EU.

After making a profit in 2017, British Steel cut about 400 jobs in 2018, blaming factors such as the weak pound.

Earlier this month, it appeared to have secured the backing of lenders and shareholders to continue operating as Brexit uncertainty hit its order book, with customers recoiling from the possible threat of tariffs.

The company also secured a government loan of about £120m at the start of May to enable it to comply with EU emissions trading-system (ETS) rules.

Political pressure

“The collapse of British Steel would be devastating for thousands of jobs in Scunthorpe, as well as in the wider supply chain,” said opposition Labour Party leader Jeremy Corbyn.

“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 as Greybull could get 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 said.

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 £60m.

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.

“GMB calls on the government and Greybull to redouble efforts to save this proud steelworks and the highly skilled jobs,” Murdoch said.

Earlier in May, British Steel won approval from a French court to buy the Ascoval steel mill in northern France, pledging to invest €47.5m in a mill and guarantee the jobs of the 270 workers employed at the site.

Ascoval is a joint venture between Vallourec and Ascometal.

Reuters