Clock ticking on efforts to find British Steel buyer

Credit: REUTERS/Scott Heppell

By Maytaal Angel and Sangameswaran S

LONDON, May 23 A(Reuters) - 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 state-owned 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 2-3 months at most as the business needs access to 400 to 500 million pounds of working capital and a cash injection in excess of 75 million pounds ($95 million), one of the sources said.

Business minister Greg Clark said the government had been in talks with potential buyers of British Steel while the opposition Labour Party and trade unions have called for the steelmaker to be nationalised.

Based in Scunthorpe, northern England, British Steel employs around 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 going into forced liquidation on Wednesday, staff have been kept on and operations maintained, with the UK's Official Receiver granted an indemnity which allows it access to government funds to keep the business running for now.

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, its 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 said, adding the government would be looking to find a solution within weeks.

Hargreaves Services HASE.L, a materials services firm, has warned it could take a pretax profit hit of 1.3 million pounds in its next full year if British Steel ceases to trade. Around 170 jobs at the firm would be at risk.

On the customer side, Network Rail, which buys about 100,000 tonnes of rail a year from British Steel, told Reuters its contingency plans include stockpiling rail, reallocating stock and servicing rail to re-use it.

Another British Steel customer said it was looking into new supply sources should the steelmaker fail.


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 since.

"Gupta is showing interest (but) to make it feasible you need a pool of banks supporting the business," said the source.

He explained 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 comment.

According to pollster YouGov, 46 percent of Britons say British Steel should be nationalised, 18 percent say it should not, while 36 percent say they do not know.

Greybull Capital, which specialises in trying to turn around distressed businesses, paid former British Steel owners Tata Steel TISC.NS a nominal one pound 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 75 million pound loan this month, later reducing its demand to 30 million pounds. It had already secured a government loan of around 120 million pounds ($154 million) 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.

The collapse of British Steel has put Greybull in the spotlight. Known for buying up distressed assets on the cheap, its record has been patchy, with four of the 10 companies it bought since 2010 placed into administration.

British Steel also operates a business in France producing rail, and a wire and processing unit in the Netherlands.

GRAPHIC-UK steel production since 1970

(Reporting by Maytaal Angel. Additional reporting by Sangameswaran S and Pratima Desai; Graphic by Andy Bruce Editing by Keith Weir and David Evans)

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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