Coronavirus: State to become top creditor in £30m Celsa loan deal
The government is expected to appoint a board observer at the UK operations of Celsa Steel, Sky News learns.
Tuesday 30 June 2020 05:36, UK
The government will become the top-ranking creditor to the UK operations of a Cardiff-based steel producer under a £30m loan deal to be announced this week.
Sky News has learnt that a state loan to Celsa UK Holdings will involve the government taking security over assets that had previously been secured in favour of commercial lenders to the company.
The arrangement, which was confirmed by banking sources on Monday night, provides further evidence of the robust stance that Whitehall officials have taken during negotiations with the UK's biggest manufacturer of reinforcement steel.
Insiders say the loan agreement will be disclosed in a written ministerial statement - expected to be made by Alok Sharma, the business secretary - on Tuesday or Wednesday.
Sky News has revealed the key details of the deal in recent weeks, including commitments that Spanish-owned Celsa is making in relation to executive pay curbs, local employment in south Wales, progress towards net-zero carbon emissions and transparency on tax and remuneration.
Although modest in the context of the financial support provided by taxpayers to British-based companies during the coronavirus pandemic, the Celsa loan will be potentially significant.
It will be the first such loan made under the Project Birch initiative established by the Treasury to consider providing financial support to companies outside of the wider COVID-19 support schemes.
Only businesses deemed to be of national import are eligible for inclusion in Project Birch.
Celsa has been designated such a company because of its role providing steel to the UK construction industry.
Under the deal between ministers and Celsa, the government is expected to appoint a board observer to scrutinise the company's delivery of its business plan.
A contingent value right (CVR) has been under discussion that would boost the government's annual return on the loan to 10%, according to a person close to the company.
Celsa will also be subject to onerous reporting obligations on its business plan, cashflow forecasts and financial performance.
As part of the deal, Celsa Steel UK's existing lenders are understood to be lending a further £50m to the company.
In total, the group employs about 1600 people in the UK, with the majority based at its plants in Cardiff.
The structure of the government's impending loan agreement underlines the Treasury's willingness to consider taking direct shareholdings in companies it regards as being of strategic importance to key industries during the COVID-19 pandemic.
The Celsa loan will be repayable over a three-year period during which the government can at any point subscribe for 20% of the equity in Celsa (UK) Holdings for a modest payment.
If that right were to be exercised, it would be the first time the government has taken a direct equity stake in a UK steelmaker for decades.
Last week, the Financial Times reported that Whitehall was "within days" of agreeing a much larger loan to Tata Steel UK, the owner of the Port Talbot steelworks.
Numerous sources have dismissed that suggestion.
"There isn't even a term sheet being drawn up, let alone a deal on the verge of being agreed," said one insider.
"The idea that a deal is imminent is completely ludicrous."
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Ministers have already imposed pay and dividend restrictions on companies accessing government-backed loans of up to £250m under the Coronavirus Large Business Interruption Scheme.
Companies utilising the Covid Corporate Financing Facility - a commercial paper scheme run by the Bank of England - are also subject to those constraints.
Some companies have been unable to access CLBILS loans or the CCFF, either for reasons of eligibility or because the funding they provide is not sufficient to ease funding challenges.
Celsa could not be reached for comment, while the Department for Business, Energy and Industrial Strategy was contacted for comment.