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The reborn British Steel was supposed to herald a new era in an industry that has suffered from decades of closures and job cuts.
Instead, less than three years after it was founded, the company is becoming more like a reminder of some of the darkest days in the history of UK manufacturing.
The country’s second-largest steelmaker was plunged into turmoil last week after it emerged that it was seeking a £75m taxpayer bailout — just two weeks after ministers agreed to an emergency £120m loan to help it meet EU environmental payments.
With talks at an impasse and fears of collapse mounting, there were even whispers in Westminster of a possible nationalisation.
Then on Thursday British Steel appeared to have averted immediate crisis by securing new funding from its existing lenders, although it made clear this was only a stopgap.
Despite the reprieve, there are serious questions about what has gone so wrong at a company with 5,000 employees that returned to profit in its first 100 days of new-found independence — and whether it has a viable future.
At the same time, scrutiny is sharpening on the actions and motives of private equity group Greybull Capital, which bought the business it would rebrand as British Steel for £1 from India’s Tata Steel in 2016, saving thousands of jobs.
Negotiations with the government hit a wall because the investor was either unwilling or unable to put money on the table, a key condition for ministers, said people briefed on the situation. Greybull has said it “invested additional capital as recently as last month”.
Any wariness on the part of government might be down to the investment fund’s chequered record.
It was the owner of Monarch airlines that went bust in 2017, forcing the government to arrange the return of 110,000 stranded tourists — the largest repatriation since the second world war — at an estimated cost to the taxpayer of £60m.
It was also among backers of the buyout of electrical retailer Comet, whose collapse in 2012 caused 7,000 job losses.
The catalyst for British Steel’s problems was Britain’s delayed departure from the EU, which led Brussels to temporarily suspend the issuance of carbon credits to UK companies.
This left British Steel needing cash to purchase allowances in the open market to plug a shortfall, prompting the need for the emergency £120m government loan.
The metal manufacturer then blamed uncertainty around Brexit for a fall in orders, as well as the weaker pound and rising raw material costs.
Christopher Davis, a steel analyst at S&P Global Platts, said the company’s Brexit-related financial struggles were shared by others across the UK and mainland Europe.
“Brexit is a genuine concern and companies are being forced to plan for a future when they have no idea what it will look like,” he said. “There’s sluggish demand, power is expensive, and many regulatory hurdles that competitors in other regions just aren’t facing.”
Yet, some wondered why Greybull needed emergency government funding when it had already assembled a £400m investment package for British Steel, mostly through bank debt, before obtaining another £90m credit line last year.
A large chunk was likely to have gone into working capital — items such as raw materials, stocks of finished goods and delivered product not yet paid for — said former employees.
However, Greybull’s initial contribution into British Steel from its own funds was less than £20m, according to several people who spoke on condition of anonymity. Greybull declined to comment.
Accounts at Companies House show that in the two years following the acquisition, Greybull took £6m in management fees from British Steel. It also charged £17m a year in interest on loans it provided via a Jersey-based parent company, Olympus Steel, at a rate of 9 per cent, though this has accrued and not yet been paid.
“In a way they were supportive, but with limitations — no guarantees, nothing [that] would hurt them personally,” said one former employee.
Another reason for consternation among workers is British Steel’s decision to push ahead with a £40m investment into a French steel producer, Ascoval, even as it requested a UK government bailout.
The deal completed this month and the amount will be mostly funded by debt against the assets, with the French state contributing an equal sum.
Unions fear that Ascoval could be fitted with equipment to enable it to supply basic material to British Steel’s existing rail factory in France, in the process displacing metal currently supplied by the giant Scunthorpe plant in Lincolnshire that forms the core of the business.
However, one former employee said: “I do genuinely think with the right strategy and investment that British Steel could be a robust business, but it will take time.”
Under Greybull’s ownership, the strategy and turnround efforts have focused on producing more niche and high-value kinds of steel for construction, rail, infrastructure and automotive markets.
They have suffered setbacks such as an unexpected technical problem with a blast furnace that led British Steel to swing into a pre-tax loss of £2m in the 2017-18 financial year, on increased revenue of £1.35bn.
On the positive side, investments have flowed, such as the £50m upgrade of a wire rod mill and the acquisition of a Dutch company that processes basic material sent from Scunthorpe.
But the legacy of assets neglected over decades means a far greater amount, at least £250m, is required to be truly competitive, according to the former employee and another ex-worker.
Before British Steel announced it had new funding, two people briefed on the matter said the steelmaker had enough cash to cover the next two months’ bills.
After then, unless the company’s fortunes reverse, the government will have to decide whether it bails out, nationalises or allows a brand to fail which in the past has been connected to British industrial strength.
“It’s like a rerun of three years ago. It’s exactly déjà vu,” said Paul McBean, a top union official at Scunthorpe. “There’s a bit of light at the end of the tunnel, but we haven’t reached that light yet.”