British Steel rescue: UK extends funding ahead of decision on Jingye

The government will keep funding British Steel’s £1m-a-day losses beyond a deadline originally set for this weekend, as the Chinese firm bidding to buy the stricken company awaits a key decision by the French government.

France’s finance ministry is expected to say next week whether it will allow the Chinese industrial firm Jingye to buy British Steel’s Hayange plant, which supplies France’s rail track and is considered a strategic national asset.

What plans does Jingye have for British Steel?

Jingye's financial profile is relatively opaque, but the company is expected to pledge investment worth £1bn over the next decade. A person briefed on Jingye's thinking said the company wanted to preserve as many jobs as possible, but could not say how many of the company's 4,000 workers would keep their jobs. British Steel accounts for a third of UK production, so is seen as a key national asset in many quarters.

What went wrong at British Steel?

When Greybull Capital bought British Steel in 2016 it promised great things. The private equity firm pledged to invest £400m and within months it was boasting of a return to profit and a bright future ahead. Three years later it collapsed. In a letter to staff, the British Steel chief executive blamed weak market demand, high raw material prices, the weakness of sterling and uncertainty over the outcome of Brexit discussions.

Who is Jingye?

Jingye emerged as the most likely owner after talks with Ataer, a division of the Turkish military pension fund Oyak, fell through in October. Founded in 1988 by a former Communist party official, Li Ganpo, the Chinese conglomerate has hotel and retail interests. However, steelmaking, which it started doing in the early 1990s, is now its primary focus: its Chinese mills produce about 15m tonnes of steel a year, exporting to 80 countries.

How much is Brexit to blame?

It is not the only factor in the crisis, but it is important and will remain crucial even if Jingye buys British Steel. Steel contracts are typically agreed well in advance of the product being delivered. As things stand, the UK is due to leave the EU on 31 January after another delay, and the terms of that separation are yet to be agreed, meaning British Steel’s overseas customers do not know what tariffs will apply to steel they buy from the company. Sources close to the company said orders from customers in the EU and further afield had dried up as a result.

Is the whole UK steel industry in trouble?

The UK steel industry has been in decline for some time because of a variety of factors such as overcapacity in EU steelmaking and Chinese state-subsidised firms flooding the global market with cheap product. An industry that employed 323,000 people in 1971 now employs less than a tenth of that, at 31,900. The closure of the Redcar steelworks in 2015 was a significant blow to the sector and left the UK with only two blast furnace steelworks: Scunthorpe and the Tata Steel-owned Port Talbot in south Wales.

Hayange is one of the few profitable parts of British Steel, prompting concern that opposition from France, which has signalled its misgivings, could cause the deal to collapse.

France has dragged its feet over the decision, while travel restrictions due to the coronavirus crisis are thought to be hampering the movement of senior Jingye staff from China to British Steel’s Scunthorpe headquarters, adding further delays.

UK government officials had hoped that the sale would be tied up by the end of this month, when an indemnity from the Treasury to fund British Steel’s loss-making operations was due to run out.

But the indemnity has been extended, allowing the firm’s major site, the Scunthorpe blast furnace steelworks, to continue operating.

A source close to the negotiation said: “There isn’t a hard deadline, it can be extended a bit like the Brexit talks. Things can be rolled over.”

However, the source acknowledged that the patience of the Treasury, which is funding the indemnity, would not be infinite.

“At some point, there has to come a time when they say this isn’t going to happen and they pull the plug. But we are not there yet.”

The shadow steel minister, Gill Furniss, said there was no sign that the government was battling to ensure French co-operation.

“Steel workers, their families and communities need to know that the sale of British Steel will not be blocked,” she said.

“They need reassurance and support but once again this part-time government has gone missing. It has been more than three weeks since we asked [steel minister] Nadhim Zahawi for assurances and he still has not even replied.

“It is bad enough for the minister to ignore questions from the opposition but it is disgraceful for him to ignore the people of Scunthorpe.”

Officials at the department for business, energy and industrial strategy, and sources close to Jingye, remain optimistic that the sale to Jingye will go ahead and could still be salvaged even if Hayange is not included.

The Chinese company, led by the former communist party official Li Ganpo, is due to send out contracts to about 4,000 staff next week. Their acceptance will take the deal a step closer to completion.

Turkey’s Cengiz Holdings and Liberty Steel, owned by the UK-based metals magnate Sanjeev Gupta, have expressed an interested in stepping in if the Jingye deal disintegrates.