Government throws weight behind Tata rescue deal

Mar14 0 LIKES

The Government is preparing to throw its financial might behind the rescue of Tata’s Scunthorpe steelworks, helping to secure a deal to save 4,000 jobs.

According to steel industry sources, the Department for Business, Innovation and Skills is likely to provide a loan of around £70m to £80m backing a takeover by the turnaround fund Greybull.

The Government’s support will be crucial in ensuring the sale of the steelworks goes through in the coming weeks.

The rescue package Greybull is assembling is expected to total£400m. As well as the government’s loan, which is likely to be on commercial terms, the funds will be made up of around £170m in financing from a consortium of banks, and a further £150m from Greybull and its investors for working capital and other credit facilities.

Tata has imposed a deadline of the end of March to offload its “long products” division, of which Scunthorpe makes up the bulk.

Sources close to the negotiations said all sides were still working towards that date but failure to make it would not jeopardise the chances of a deal being agreed.

The new backers believe that the cash injection will be enough to secure the future of the historic Lincolnshire steel plant, which makes everything from girders to rail tracks.

The deal is also expected to include mills in Teesside and Hayange, northern France, also part of Tata’s long products arm.

The division generates around £1.6bn of sales annually but is on course to post losses of £100m this year.

However, advisers are confident that if the full restructuring is implemented, the struggling operations could be making £100m profit within 24 months.

Tata’s European boss, Dr Karl Köhler, warned last year that the business has no future in Tata’s sprawling empire. Dr Köhler stood down last month, raising fresh questions about the future of Tata’s UK operations, acquired through its £6.7bn takeover of Corus in 2007.

If a buyer is not found, the Scunthorpe plant and its sister sites are expected to face closure. Bosses at Scunthorpe insist that the plant can survive if its cost base is significantly scaled back, the plant focuses more on high-end products and the Government provides some respite from business rates and energy prices.

Source: Telegraph

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