Ministers are believed to be prepared to offer the loan — on commercial terms — to turnaround investor Greybull Capital as a deadline looms to sell the vast Lincolnshire plant owned by Tata, the Indian industrial conglomerate.
With about 4,000 jobs in the balance, ministers are desperate to ensure the deal proceeds. The Department for Business, Innovation & Skills (BIS) is negotiating the support package, which is being drafted in a way to avoid breaching strict European rules on state aid.
Tata has set a deadline of March 31 for the sale of the long-products division, which makes rails and beams for the construction industry. But sources believe that this deadline will be extended should Greybull fail to sign in time.
The loan is part of a £400m investment package, which includes debt, equity and reinvested cost cuts. The London-based turnaround fund believes it can return the plant to underlying profitability within a year.
Greybull, which rescued the ailing leisure airline Monarch and is run by brothers Marc and Nathaniel Meyohas, has also appointed headhunter Heidrick & Struggles to find a chief executive to run the standalone business, which sources believe may be renamed British Steel.
However, industry insiders said that the performance at Scunthorpe deteriorated in January and February, amid intense competition from low-cost Chinese steel, underlining the challenge that Greybull faces in attempting to turn it around. Greybull declined to comment.
The plant is expected to be sold for a nominal sum, with Tata likely to throw in a dowry while retaining big pension liabilities.
The sale marks the latest stage in Tata’s retreat from Britain’s steel industry after its disastrous £6.7bn purchase of Anglo-Dutch company Corus, the former British Steel. It has written down the value of long products to zero, and industry experts believe it may quit the British steel sector entirely. BIS said: “We are in regular contact with Tata and Greybull.”