Clock ticking on efforts to rescue British Steel
Up to 25,000 jobs at risk if a buyer is not found within three months
London — Time is of the essence if the UK authorities are to broker a rescue of British Steel after it collapsed into liquidation, putting 25,000 jobs at risk.
British industrialist Sanjeev Gupta’s Liberty House has emerged as one potential bidder for the country’s second-largest steel producer, two sources told Reuters on Thursday.
The Financial Times reported that Chinese group Hesteel, which owns a steel plant in Serbia, and private equity fund Endless, could also be bidders.
A buyer would need to be in place within two to three months as the business needs access to £400m to £500m of working capital and a cash injection in excess of £75m, one of the sources said.
Business minister Greg Clark said British Steel was open to new buyers while the opposition Labour Party and trades unions have called for the steelmaker to be nationalised.
Based in Scunthorpe, northern England, British Steel employs about 5,000 people directly, while 20,000 more depend on its supply chain. It is owned by investment firm Greybull Capital, former owners of collapsed airline Monarch.
Despite the company going into liquidation on Wednesday, staff have been kept on and operations maintained. There are practical reasons for this as it would facilitate a rescue but the cash crunch could be felt by suppliers as all of British Steel’s lenders are in the process of pulling out, the source said.
British Steel produces steel from scratch in its blast furnace in Scunthorpe. Blast furnaces cannot easily be turned on or off, but need to be continually supplied with raw materials to keep their temperature steady.
“Electricity, gas and oxygen, these things you don’t stock, if suppliers decide to stop they (British Steel) close. Some suppliers need to be paid every day, it’s a very difficult situation,” the source said.
“We’re going to see announcements from these companies explaining that they have to make people redundant,” he added.
On the customer side, Network Rail, which buys about 100,000 tons of rail a year from British Steel, said its contingency plans include stockpiling rail, re-allocating stock and servicing rail to re-use it.
Liberty House, one of the world’s largest privately owned industrial groups and Europe’s third-largest steel producer, has expanded rapidly in recent years, snapping up distressed steel and aluminium assets around the world.
“Gupta is showing interest (but) to make it feasible you need a pool of banks supporting the business,” said the source. He explained that the government was keen to put money into the business so long as the funds were structured in such a way that a private buyer does not benefit from them should the steelmaker fold for good.
Liberty House declined to comment.
Greybull Capital, which specialises in trying to turn around distressed businesses, paid former British Steel owners Tata Steel a nominal £1 for the business three years ago.
Jon Bolton, director of global steel development at Liberty House, was formerly director at Tata Steel Long Products Europe – the business sold to Greybull and renamed British Steel.
British Steel had asked the government for a £75m loan in May, later reducing its demand to £30m. It had already secured a government loan of about £120m to cover its carbon taxes.
Having turned a profit in 2017, British Steel cut around 400 jobs last year, blaming factors such as the weak pound and uncertainties surrounding Brexit, which it said hammered its order book.
Making a profit in steel is particularly difficult in Britain, where steelmakers pay some of the highest green taxes and energy costs in the world, as well as facing high labour costs and business rates.