UK Most Likely to Offer Loan to Help Tata Steel Plant Investment

A “co-investment” could be in the pipelines.

Birds fly above part of the TATA steel plant in Scunthorpe northern England, 15 October 2014. (Photo: Reuters)

Britain could offer a state loan on commercial terms to help tempt a potential purchaser for Tata Steel’s Port Talbot steelworks, a government source told Reuters on Tuesday.

Prime Minister David Cameron, who has called a referendum on EU membership for 23 June, is under pressure to keep Tata‘s British steel plants open after the Indian conglomerate said last month that it was selling up in Britain.

Business Secretary Sajid Javid had said on Monday that the government would consider “co-investing” with a buyer on commercial terms to help ensure the future of Tata‘s flagship Port Talbot plant in south Wales.

Though Cameron has said nationalisation is not the right answer, Javid’s comment on co-investing was interpreted by The Financial Times and The Guardian newspapers as opening up the possibility of the state taking an equity stake in Port Talbot.

UK Prime Minister David Cameron. (Photo: Reuters)

The government source, who spoke on condition of anonymity due to the sensitivity of the situation, said that there was only a remote possibility that the state would end up taking an equity share in the Port Talbot operation.

The source said that a government loan as part of a deal with other investors was the “likeliest scenario” for the purchase of the steelworks.

As many as 15,000 jobs are in danger in Britain after Tata said it was is selling its British steel operations because of a global oversupply of steel, cheap imports from China, high manufacturing costs and weak domestic demand.

For free-market politicians such as Javid who has styled himself as an heir to former Conservative Prime Minister Margaret Thatcher, nationalisation is ideologically unpalatable.

Tata Steel is the second-largest steel producer in Europe with a diversified presence across the continent. It has a crude steel production capacity of over 18 million tonnes per annum (mtpa) in Europe, but only 14 mtpa is operational.

Announcing its decision to pull out of the UK in March, Tata said it could no longer endure mounting losses caused by increased shipments to Europe from countries like China, high manufacturing costs, and domestic market weakness.

Nevertheless, the government says it is hopeful of finding another buyer, although that process could take some time given the complexity of any deal, including negotiations over everything from pensions liabilities to energy subsidies.

On Monday, Tata agreed to sell a steelworks in northern England to investment firm Greybull Capital for 1 pound on Monday, saving a third of the job at risk in Britain.