Hopes Rise For Tata Steel Rescue Deal

12 August 2016

Tata Steel is increasingly confident about securing a rescue deal for its UK business and the Port Talbot steelworks in Wales, after talks with the business secretary and the Pensions Regulator.

Approximately 11,000 jobs are at risk after Tata Steel threatened to pull out of the UK. However, a senior source close to the process said an agreement to secure the future of Tata Steel UK and Port Talbot was “nearly there”, although it might not be finalised until the final quarter of the year.

Negotiations to save the business are complicated. Tata Steel shelved plans to sell its UK operations after David Cameron’s government offered hundreds of millions of pounds of financial support and indicated it was ready to change the law so the company could restructure its pension scheme, which has a deficit of £700m.

Tata Steel now plans to merge its European operations, including the UK business, with ThyssenKrupp. It will also sell its speciality steels business and its pipe mills, which are based in northern England and employ about 2,000 people.

However, Tata Steel and ThyssenKrupp will include the UK operations in the tie-up only if the pension scheme can be restructured and the package of support from the government – which includes loans on commercial terms worth up to £1bn – can be secured. This has been complicated by the EU referendum and the change of prime minister.

Greg Clark, the business secretary, held positive talks with the Tata chairman, Cyrus Mistry, in India on Wednesday. Clark’s predecessor, Sajid Javid, had pledged to help Tata Steel UK and Theresa May’s government is understood to be supportive of the plan.

“They are following the same route as previous,” the source said. “The sentiment is the same.”

Talks with ThyssenKrupp are understood to be progressing well. The German conglomerate said on Thursday the EU referendum would not impact on the potential deal, but had slowed the progress of talks.

Guido Kerkhoff, ThyssenKrupp’s finance director, said: “Brexit is something that definitely effects us on the timeline. For the discussion, it’s actually neutral.”

He declined to say when the talks were likely to be completed, adding: “Sometimes one has to live with uncertainty.”

Tata Steel is in talks with the Pensions Regulator about the British Steel pension scheme, which was inherited by the Indian company when it bought Corus for £6.2bn in 2007. The scheme has 130,000 members, liabilities of £15bn and a deficit of £700m.

Tata Steel is examining various options to restructure the pension scheme and lower the deficit. It is understood that the options no longer include the government changing the law so that the inflation-based annual increase in benefits is connected to the lower consumer price index, rather than the retail price index.

The law change was backed by Javid, despite concerns from the Department for Work and Pensions and the Pension Protection Fund that it could create a dangerous precedent.

A restructuring of the scheme could involve Tata Steel pumping money into it in return for a change in workers’ benefits.

A spokesperson for the Pensions Regulator said: “We continue to engage with the trustees, employer and government on the issues facing the British Steel pension scheme. We will only comment in more detail if and when it is appropriate to do so.”

The government said it was committed to finding a “long-term viable future” for the steel industry in the UK.

A spokesperson for the new Department for Business, Energy and Industrial Strategy, created by May, said: “This is a difficult time for steel workers in Port Talbot and across the UK. The government is committed to helping the steel industry secure a long-term viable future in the UK.”

Trade union leaders have grown frustrated at the time it has taken Tata Steel to resolve the future of its UK business. The Indian company first warned that the future of Tata Steel UK was being reviewed in March. This led to heavy criticism of the government for not doing enough to support the industry. Javid was in Australia with his daughter when Tata Steel made the announcement.

Tata Steel then invited bids for the business. It eventually shortlisted seven proposals, including a management buyout and a bid from the energy tycoon Sanjeev Gupta. However, the government’s pledge to provide hundreds of millions of pounds of financial aid encouraged Tata Steel to reconsider its position and the bids were dismissed as unattractive.

Tata Steel’s drive to rebuild the UK business has become less urgent because the pressure on the steel industry has eased. Earlier this year Tata Steel was losing more than £1m a day in the UK, with an influx of cheap steel from China driving down prices.

However, steel prices have risen since March. The fall in the value of sterling also means that Tata Steel’s exports have become more attractive and it is more expensive for Chinese companies to import steel into the UK.

A Tata Steel spokesman said: “We remain committed to achieving the best possible outcome for our UK business. Our aim remains to find a sustainable future for our UK business. There are a number of options which we are pursuing to achieve that.”


Source : theguardian.com