Port Talbot steel plant could be rescued by German company

Steelworks’ owner Tata could revive idea of buyout by ThyssenKrupp if UK government offers financial backing

A potential saviour for the Port Talbot steel plant has emerged in ThyssenKrupp, the German industrial conglomerate, as Tata Steel claimed it was committed to finding a buyer for its beleaguered UK business rather than closing the sites.

The Observer understands that just three months ago ThyssenKrupp was in talks with Tata about buying Port Talbot and its other UK sites as part of a deal to buy its European business, including its other major steelworks in the Netherlands. However, the German company walked away due to concerns about the losses of the UK business and its pension liabilities of almost £15bn.

A source close to Tata said “they could find a solution” and potentially rescue the deal with the Germans if the UK government provided substantial financial support and the pension scheme, which has 130,000 members, were restructured.

However, the dire financial situation facing Tata’s UK steel business makes the prospect of any rescue deal difficult. It is understood that Tata Steel is losing £2.5m a day in the UK, up from the reported £1m, and that it will lose at least £100m in running a sales process until the end of April.

Tata is understood to have been close to announcing the closure of its UK business but decided to make a final attempt at finding a buyer and winning government support. “This is the last-chance saloon,” a source said.

Reports in Europe on Friday claimed that ThyssenKrupp is interested in merging with Tata Steel’s European business after the sale of its UK arm, with the new business spun off as a joint venture. ThyssenKrupp has declined to comment on the reports.

While this deal may eventually happen, ThyssenKrupp was initially in talks about the entire European business, a deal that would make it the largest steelmaker on the continent and stop any new competition emerging in the UK.

The government is aware of its interest and is thought to have contacted the company. The suggestion that Tata could be willing to sell its Dutch plant alongside the UK business boosts hopes that a buyer can be found.

The Cabinet Office responded to growing pressure for a solution by announcing changes to official guidance to ensure that the public sector considers “the social and economic impact of the steel they source” for major projects – meaning there will be an obligation to use UK-produced steel wherever possible. Labour will produce a four-point plan to rescue the industry, saying Tata must allow time for a buyer to be found and agreement to be reached, but that if no viable purchaser is available it should be nationalised. Shadow chancellor John McDonnell also wants to “fast track” key infrastructure projects requiring large amounts of steel. McDonnell said: “This plan is a good starting place for a framework by which hopefully we can get cross-party agreement to find a solution to save the industry and the workforce.”

The rise and fall of the British steel industry – video explainer

The UK steel industry and the government were thrown into crisis after Tata Steel announced it planned to pull out of the country, putting 15,000 jobs at risk at the company itself and a further 25,000 jobs in the supply chain.

There are concerns that no buyer will be found for Tata’s sites, including Port Talbot, the biggest steelworks in the country. There are just weeks to find a buyer and the company will decide on the future of the UK business at a board meeting at the end of April.

Sajid Javid, the business secretary, has urged Tata to act as a “responsible owner” and allow time to find a buyer. The government’s preferred option is thought to be to secure a deal by offering a loan to a new buyer. This loan would need to be on commercial terms so as not to fall foul of EU state-owned rules. The government will this week appoint a financial adviser to draw up the terms of any loan.

Tata considers the options for its UK business to be a management buyout led by unions, a break-up to different buyers, a sale of the entire business to one party, potentially to ThyssenKrupp, or closure. However, all the options are fraught with difficulty. The unions would need financial backing for a deal, while a break-up could be complex. The Tata source said: “There could be solutions for part of it, but that could be very messy.”

The source insisted that the government and Tata were committed to finding a buyer, despite the dire financial situation and suggestions they were going through the motions. It is understood that if enough progress has been made in finding a buyer by the April board meeting, Tata will press ahead with talks rather than closing the UK sites. However, in India, Tata and its boss, Cyrus Mistry, are under pressure for holding on to the European business for so long.

In a statement, Tata Steel said: “We are committed to running a meaningful process to explore strategic alternatives for Tata Steel’s UK business. This could include finding one or more buyers for our UK operations. The sale process began on Wednesday 30 March and although there is no fixed timeline, it needs to be implemented urgently as there are severe funding requirements affecting the UK business.”

Tata’s pension liabilities are a major hurdle for any buyer. The British Steel Pension Scheme (BSPS), which was inherited by Tata when it bought Corus in 2007, has £14.5bn of liabilities, making it one of the biggest pension schemes in the UK.

Accounts for the business show that last year Tata had to pump £129m into the scheme last year and will spend even more in 2016.

The 130,000 members of the pension scheme, which has a deficit of £485m, face an uncertain future if Tata sells the business.

John Ralfe, a pensions expert, said Tata Steel’s UK operations are a “pension fund with a business tagged on”.

He warned that Tata could be forced to pay more than £2bn into the scheme if it sells the business.

“Tata hasn’t addressed annual pension costs early enough. They should have closed to existing members a long time ago. They took the easy option.

“They could have to pay more than £2bn to keep the regulator happy.”

If the business did collapse into administration the pension scheme would enter the Protection Pension Fund. A new buyer of the business could therefore decide to buy it through an insolvency process, which would enable them to potentially offload the pension scheme.


Graham Ruddick

The GuardianTramp

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