Home Economic, Financial news British Steel goes into liquidation after failing to secure loan

British Steel goes into liquidation after failing to secure loan

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© Reuters. FILE PHOTO: A British Steel works sign is seen in Scunthorpe© Reuters. FILE PHOTO: A British Steel works sign is seen in Scunthorpe

By Maytaal Angel and Costas Pitas

(Reuters) – British Steel, the country’s second largest steel producer, has collapsed after failing to secure emergency government funding, jeopardising some 25,000 jobs, Britain’s Official Receiver said on Wednesday.

The High Court ordered the compulsory liquidation of the company, adding its staff have been paid and will continue to be employed as the liquidator oversees the continuing operation of the main site in Scunthorpe, northern England.

Owned by investment firm Greybull Capital, British Steel employs around 5,000 people, mostly in Scunthorpe, while 20,000 more depend on its supply chain.

Britain’s opposition Labour Party called on the UK government to bring British Steel into public ownership.

Greybull Capital, which specialises in trying to turn around distressed businesses, paid former British Steel owners Tata Steel a nominal one pound in 2016 for the loss-making company.

“In light of events over the past few weeks, it is clear Greybull needs to do the right thing by getting out of the road and let those who are committed to our industry work to save the business,” the union Community said in a statement.

It called on the government to use all options to secure the assets and rebuild the business, adding clean-up costs for the industrial site could end up costing taxpayers more than a billion pounds.

Signs of the ripple effect on related companies are already beginning to emerge.

Hargreaves Services, which supplies materials handling and other services to British Steel, said earlier if the steelmaker ceases to trade, this could reduce its profit before tax in the next full year by about 1.3 million.

SEEKING A LOAN

British Steel had asked the government for a 75 million pound loan, later reducing its demand to 30 million pounds after Greybull agreed to put up more money, according to a source close to the negotiations.

It had already secured a government loan of around 120 million pounds ($154 million) this month to enable it to comply with the European Union’s Emissions Trading System (ETS) rules.

Greybull was the former owner of Monarch, an airline that went bust in October 2017, and also provided backing for the buyout of British high street electronics chain Comet before its collapse in 2012.

The UK government has a chequered history with Greybull, after the Monarch collapse forced it to repatriate more than 100,000 stranded tourists at a cost of about 60 million pounds.

The collapse of British Steel comes after ’s Thyssenkrupp (DE:) and India’s Tata Steel ditched a plan this month to merge their European steel assets to create the EU’s second largest steelmaker after ArcelorMittal.

The collapsed merger leaves the wider EU steel sector fragmented and vulnerable to economic downturns. It also calls into question the fate of Britain’s largest steelworks in Port Talbot, Wales, owned by Tata Steel.

After making a profit in 2017, British Steel cut around 400 jobs last year, blaming factors such as the weak pound and uncertainties surrounding Britain’s departure from the European Union, which it said hammered its order book.

Hunter Kelly, Sam Woodward and Alan Hudson of EY have been appointed to act as special managers to assist the Official Receiver with his duties in relation to British Steel, including engaging with staff and contacting the steelmaker’s customers.

Source: Investing.com