Stemcor debt deal saves 1,000 steel jobs in ray of light for troubled sector

28 October 2015

More than 1,000 jobs at British steel-trading giant Stemcor have been saved after lenders agreed to a $1.5bn (£1bn) debt “haircut” following months of negotiations.

Workers at Stemcor, one of Britain’s largest private companies, had faced a potentially similar fate to those recently left without jobs at steel producers SSI and Tata.

But in what will be seen as a rare ray of light in the troubled British steel sector, it is understood that 95pc of senior lenders to Stemcor have agreed to back a new scheme to restructure the debt and split the company in two.

The agreement, which has High Court backing, means the creditors have taken a $1.5bn haircut, with their original exposure of $3.1bn being reduced to closer to $1.6bn following a debt for equity swap.

The deal has the backing of more than 90 lenders to the company, which in 2012 had an annual turnover of £5bn and traded about 20m tonnes of steel in 45 countries.

Stemcor, which was once controlled by the Oppenheimer family - which includes Margaret Hodge, former chairman of the Public Accounts Committee - ran into trouble in the wake of the financial crisis.

It missed repayments on its debt pile after buying an Indian iron ore mine as the market froze following the financial crash. In 2013 PwC was appointed by Stemcor’s lenders to restructure its borrowing, agreeing a deal in March last year.

However, the slowing global economy and lower demand for steel from China meant another restructuring was necessary, a process complicated by distressed debt investors who had piled into Stemcor’s debt. To secure the deal, Moorgate Industries, Stemcor’s former holding company, and two subsidiary businesses were put into administration, paving the way for an agreement to be reached.

It is thought the arrangement will see the core Stemcor steel trading business, to be called Stemcor Global Holdings, spun off into one unit, with the troubled iron ore mine held in a separate business. While the restructuring has protected jobs at the business in the short term, sources said a further downturn in the already depressed steel market could see redundancies made.

Meanwhile, in a sop to the UK’s steel industry, Business Secretary Sajid Javid has confirmed steel makers will be able to take advantage of special flexibilities to comply with European Union rules on emissions, giving them up to four and a half years to meet new targets. As he headed to Brussels to try to gain approval for state aid to cut energy costs for steel companies, Mr Javid also called for an emergency EU meeting to discuss the state of the steel industry and unfair trade practices.

The move came as members of the industry told MPs on the Business, Innovation and Skills select committee that Britain’s steel industry was in critical condition.

“We’re a patient on the operating table and we’re bleeding very, very quickly,” said Gareth Stace, director of UK Steel, describing the health of the industry and calling for support over energy prices, changes to business rates and EU-wide action to half Chinese steel dumping. “Unless there is extremely urgent action - in weeks, not months - we’re likely to die on the table.”

Tor Farquhar, Tata's human resources director, said that while he was not looking to cut jobs now, “nothing can be ruled out. We’re under enormous pressure and I can’t emphasise how much we need action.”