Britain’s biggest steel producer is encouraging the government to take a big stake in the company as part of a plan to preserve the long-term future of the vast Port Talbot steelworks in south Wales.
Sky News has learnt that Tata Steel has presented proposals to Whitehall in recent weeks aimed at securing a state injection of close to £1bn into its UK operations.
In return, the company’s Indian parent would hand an equity stake of up to 50% to UK taxpayers – amounting to a semi-nationalisation of Britain’s largest steelmaker as it battles the impact of the coronavirus pandemic.
A source close to Tata Steel said the proposal – which is just one of the options the company is examining – would involve its parent company writing off an equivalent quantity of debt owed to it by the UK business.
This weekend, it was unclear whether the plans presented by Tata Steel had been well-received by the Treasury and the Department for Business, Energy and Industrial Strategy.
The talks are at a tentative, rather than concrete, stage, and the structure of any deal, as well as the size of any financial contributions, remain far from being finalised.
Analysts said it was unlikely that the government would want to inject new capital into any company applying for emergency aid unless its shareholders were also willing to do so.
The latest overture from Tata Steel comes three months after it requested a £500m loan from the government.
That plan is said to have been rejected on the basis that it was not accompanied by credible proposals for a transformation of the perennially struggling UK operations.
One company insider said the government’s response had spurred Tata’s Indian parent to draw up a comprehensive blueprint for modernising Port Talbot.
The Sunday Times revealed last weekend that Tata Steel was exploring the closure of the plant’s two blast furnaces and replacing them with electric arc furnaces – a move that could spell job losses for some of Port Talbot’s roughly 3,500 workers.
The discussions between Whitehall officials and the company form part of Project Birch, the existence of which was revealed by Sky News soon after the UK-wide lockdown sparked chaos for millions of companies in sectors including aviation, hospitality, manufacturing and retail.
Since then, the bespoke financial support programme created by the government for companies of strategic national importance has extended only one loan: to Celsa Steel, a Cardiff-based subsidiary of Spanish steelmaker Celsa which is a major supplier to the UK construction industry.
Under that deal, the UK government extended a £30m loan in exchange for warrants that could be converted to an equity stake before the end of 2023.
Other steel producers, including British Steel, which is now owned by China’s Jingye Group, have also sought financial help from the taxpayer since the beginning of the COVID-19 crisis.
Last month, the Financial Times reported that the government was days away from extending a loan to Tata Steel, raising the hopes of thousands of steelworkers, but it was rapidly dismissed by insiders
Chancellor Rishi Sunak has indicated that taking large equity stakes in distressed companies would be an undesirable outcome of the pandemic, but it is conceivable that he would make an exception for a company that occupies such an important role in British manufacturing.
In total, Tata Steel employs about 8,000 people in the UK, having undergone a series of earlier financial restructurings, including one in 2017 which gave the Pension Protection Fund a 33% stake in the company.
It is unclear how any further realignment of the shareholder structure would impact the pension lifeboat’s interest.
A spokesperson for Tata Steel Europe said: “We are in active discussions with the UK government on several options for the future of our UK operations, including potential co-operation and participation from the government to create a sustainable decarbonised footprint for the future.
“Given prevailing market conditions and disruption caused by the COVID-19 pandemic, it is clear that our UK operations face structural challenges that need to be urgently addressed.
“Discussions with the Government are constructive and ongoing, and at this stage no decisions have been made.
“It would therefore be inappropriate to comment on unsubstantiated speculation about the outcome of these discussions or the potential impact of any changes to secure our sustainable long-term future.
“If and when we do have progress to report, we will first inform our employees and consult with our employee representatives.”
A government spokesperson said: “The government has put together a far-reaching package of support to help businesses through the coronavirus pandemic.
“We continue to regularly engage with businesses across all sectors, including those in the steel industry.”
It declined to comment specifically on its talks with Tata Steel.
Tata has been wrestling with the future of the Port Talbot plant for years.
In January, Natarajan Chandrasekaran, chairman of Tata Steel’s parent company, said: “I need to get to a situation where at least the [Port Talbot] plant is self-sustaining.
“Whether it is in the Netherlands or here, we can’t have a situation where India keeps funding the losses just to keep it going.”
The lobbying group for the industry, UK Steel, has pleaded for government support to see it through the crisis.
“Whether it is constructing HS2 and Northern Powerhouse Rail or providing the steel for our new hospitals, the steel industry stands ready to support the national effort as well as the Government’s infrastructure revolution and levelling up agenda,” Gareth Stace, its director, said.