Bankers called to end Tata Steel bailout | Economic news


The government has parachuted in to investment bankers to help craft a bailout for Britain’s biggest steel producer after months of negotiations over a deal that could save thousands of jobs.

Sky News has learned that Credit Suisse has been invited by the Treasury to advise on negotiations with Tata Steel, owner of the giant Port Talbot plant in South Wales.

City sources said over the weekend that ministers also drew up in McKinsey, the management consultants, a plan for the future of Britain’s steel industry at large.

Since the start of the coronavirus pandemic, thousands of steelworkers have been laid off

The appointment of Credit Suisse – which banking sources said had agreed to work on a pro bono basis – will end speculation that negotiations between the government and the Indian industry group have ended.

Sources in the steel industry said Tata Steel was set to present a revised proposal to ministers that would involve a substantial infusion of funds from taxpayers.

An earlier plea from Tata Steel, revealed by Sky News in July, has sought around £ 900million of government cash in return for a stake of up to 50% in its UK operations.

Officials, however, appear to have hesitated with the proposal on the grounds that the steelmaker’s parent company would have written off an equivalent amount of debt without committing significant new equity.

The talks have become increasingly urgent as Tata, one of India’s largest conglomerates, seeks to stem losses from its perpetually troubled British steel operations.

In total, the company employs around 8,000 people in the UK, including 3,500 in Port Talbot.

Credit Suisse played a central role in advising ministers during the 2008 banking crisis and more recently saw some of its top executives being recruited to help the government.

Charles Donald, a former Credit Suisse banker, now heads UK Government Investments (UKGI), the Whitehall unit that oversees the state’s interests in companies such as Channel 4 and NatWest Holdings.

UKGI is also playing a key role in Project Birch, the name given to assessing applications for funding from companies that fall outside the scope of Chancellor Rishi Sunak’s emergency loan programs.

So far, only Celsa, a Welsh steel producer that primarily supplies the construction industry, has secured a tailor-made loan of £ 30million, with strict terms linked to executive pay and environmental targets .

The Celsa loan includes warrants that could be converted into a participation before the end of 2023.

Over the weekend, a government spokesperson said: “We remain very supportive of the UK steel sector and its valuable contribution to the UK economy.

“The government regularly uses external advice to better understand how to support businesses. ”

Discussions with Tata Steel could continue for several months, according to insiders.

Industry sources said McKinsey’s mandate to help forge a vision for the future of Britain’s steel industry was also important.

The consultant’s work would help inform decision-making about which companies deserve government support, they said.

Since the onset of the coronavirus pandemic, thousands of steelworkers have been laid off and all of the country’s largest producers – including British Steel and Liberty Steel – have asked for government financial help.

The Sunday Times reported in July that Tata Steel was considering closing its two blast furnaces at Port Talbot and replacing them with cleaner electric arc furnaces.

Such a move would reduce the plant’s carbon emissions, but potentially lead to substantial job losses, prompting the GMB union to publicly commit to fighting to protect the jobs of its members.

The hiring of Credit Suisse comes more than four months after Tata Steel requested a £ 500million loan from the government during the initial phase of the pandemic.

This plan was reportedly rejected on the grounds that it was not accompanied by credible proposals for transforming British operations.

Tata Steel has undergone a series of financial restructurings, including one in 2017 that gave the Pension Protection Fund a 33% stake in the company.

It is still unclear how a further realignment of the shareholding structure would impact the interest of the pension lifeboat.

In January Natarajan Chandrasekaran, chairman of the parent company of Tata Steel, said: “I have to come to a situation where at least the [Port Talbot] the plant is self-sufficient. ”

The Treasury declined to comment on Saturday, while Tata Steel Europe said: “We are in active talks with the UK government on several options for the future of our UK operations, including potential cooperation and involvement of the UK. government to create a sustainable low-carbon environment. imprint for the future.

“Given the market conditions and the disruption caused by the COVID-19 pandemic, it is clear that our UK operations are facing structural challenges that need to be addressed urgently.

“Discussions with the government are constructive and ongoing, and at this stage no decision has been taken. “


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