Watch for vulture speculators out to make a killing from financial manipulations which threaten the future of the steel industry in Britain, says LAURENCE PLATT
READERS will be familiar with how Greybull Capital loaded Monarch Airlines with loans shortly before it went bust and was able to sidestep the resulting financial loss while keeping hold of the company assets.
It has now emerged that Greybull has appeared to do something similar with British Steel. It will be recalled that Greybull bought Tata’s long products division for a nominal £1 in 2016 and within months Greybull was able to claim that the company had returned to a trading profit.
It comes as something as a surprise then that the company accounts released a few days ago included a loan to British Steel Holdings — the company that owns the long product division — of £154 million.
According to Oliver Gill of City AM, the interest on the loan is 9 per cent plus Libor (the average of interest rates estimated by the London banks that would be charged if they were to borrow from other banks).
Servicing the debt will cost British Steel £16m a year with the outstanding amount plus interest to be repaid in full by 2019.
When questioned about the loan, Greybull defended itself by insisting that the interest on the loan was “market standard” and that apart from £3m in fees it had not taken any money out of the company and didn’t intend to until such time as the company was more financially robust.
Against the background of Monarch Airlines and claims that within months of Greybull buying the long products division it was now in profit sit uneasily with both the loan and its justification for the level of interest repayments.
At a time when the steel industry in both Britain and across Europe is still experiencing sluggish recovery from the crisis of 2015-6, can British Steel be realistically in a position to make the repayments that are demanded by Greybull?
As the British Steel long products division does not operate in a vacuum it is instructive to look briefly at the fluctuating demand for steel products across the EU (source: MEPS Steel News 23/5/2017):
• Germany. Underlying steel consumption is robust reflecting a generally healthy economic situation. However a substantial part of this consumption is imported from India, China, Taiwan, Vietnam, South Korea and Russia.
• France. A general downward trend in end user activity with demand slowing.
• Italy. Demand is stagnant.
• Britain. Manufacturing industry continues to perform strongly but third-quarter sales of steel showed a fall in prices with third-country import offers considerably cheaper than domestic products putting profit margins under pressure.
• Belgium. Steel consumption appears to have reached its peak with third-quarter demand falling. Even though imports could be brought at competitive prices little interest is being shown as buyers wait for further reductions in price.
• Spain. A negative price trend has led to a lack of orders from the mills as buyers wait for further price reductions. Imports are available but with buyers putting on pressure for price reductions the market as a whole is in “wait and see” mode.
Demand for steel across Europe shows that the industry has not overcome the crisis of 2015-6. Domestic production remains under pressure from imports and this is exacerbated by decisions from buyers to either to go for the cheaper product, much of which is being stockpiled, or to wait for the price of the domestic product to be reduced and never mind the potentially disastrous consequences for the steel industry in the various European countries, including Britain.
Any rational response to the parlous situation facing the steel industry across Europe would see the British government intervene and introduce nationalisation as a key tool to ensure its survival.
Under current EU rules however this is specifically ruled out. This is spelled out in UK Steel Industry: Statistics and Policy (House of Commons Library, Briefing Paper, October 2016).
In the section on state aid it says: “State aid is when public organisations selectively support certain enterprises or industries, financially or by other means. State aid is generally prohibited in the European Single Market because it can distort competition between firms, discourage investment and cost consumers. EU state aid rules aim to create a level playing field so that, for example, British firms can compete fairly with German ones.”
Perhaps one of the most potentially important developments in the steel industry has been the joint venture between Tata and Thyssenkrupp which looked to have been signed, sealed and delivered until both Dutch and German works councils announced recently that they intended to oppose the move amid fears of substantial job losses and, in the case of Germany, a real fear that Thyssenkrupp intended to use the joint venture to get out of steel altogether.
With the Tory government still wedded to neoliberal solutions to the problems facing the steel industry, venture
capitalists like Greybull are given a free hand to act as they will.
The loan that it has burdened British Steel Holdings with, combined with the £16m-a-year repayment schedule and the repayment to be made in full by 2019, should set alarm bells ringing across the industry and and the wider community.
We have seen what Greybull is capable of with the collapse of Monarch Airlines and no-one should have any confidence that its behavior towards British Steel will be any different.
It is not hard to envisage a situation in which the demand for steel products continues to stagnate or even drop. Then Greybull could feel that the time is right to cut its losses. But it is likely to sidestep these, as it did with Monarch and still end up owning the assets — which in the case of British Steel includes the land that the plant stands on.
The importance of the steel industry demands that urgent measures are taken to ensure its survival as a centrally vital part of our manufacturing capability. There is no hope that the current government will step up to the plate and the next election could still be some way off.
Workers and their unions must be prepared to fight any moves to close vital parts of the industry full in the knowledge that they would have the overwhelming support of the rest of the movement and the wider community.