By Maytaal Angel and Costas Pitas
LONDON (Reuters) - British Steel, the country's second largest steel producer, has collapsed after failing to secure emergency government funding, jeopardising some 25,000 jobs, Britain's Official Receiver said on Wednesday.
The High Court ordered the compulsory liquidation of the company, adding its staff will continue to be employed as the liquidator oversees the continuing operation of the main site in Scunthorpe, northern England.
Owned by investment firm Greybull Capital, British Steel employs around 5,000 people, mostly in Scunthorpe, while 20,000 more depend on its supply chain.
Greybull Capital, which specialises in trying to turn around distressed businesses, said it had tried to keep British Steel alive but the challenges of Britain's looming exit from the European Union proved insurmountable.
Business Minister Greg Clark said British Steel was open to new buyers, while the opposition Labour Party called on the government to bring British Steel into public ownership.
Graybull paid Tata Steel a nominal one pound for the business three years ago. After making a profit in 2017, British Steel cut around 400 jobs last year, blaming factors such as the weak pound and uncertainties surrounding Brexit, which it said hammered its order book.
EU steel company shares are currently trading at their lowest in nearly three years, driven down by weak demand, high raw materials costs and cheap imports that can no longer reach the United States due to trade tariffs.
Turning a profit in steel is especially difficult in Britain, where steelmakers pay some of the highest green taxes and energy costs in the world and are saddled with high labour costs and business rates.
Jeff Kabel, chairman emeritus of the International Steel Trade Association (ISTA), said the government was paralysed by Brexit and unable to address the steel sector's challenges.
The collapse of British Steel comes after Germany's Thyssenkrupp (DE:TKAG) and India's Tata Steel ditched a plan this month to merge their European steel assets to create the EU's second largest steelmaker after ArcelorMittal.
That failed merger left the wider EU steel sector fragmented and vulnerable to economic downturns. It also called into question the fate of Britain's largest steelworks in Port Talbot, Wales, owned by Tata Steel.
(For a graphic on 'UK steel production since 1970' click https://tmsnrt.rs/2LX989V)
SEEKING A LOAN
Signs of the ripple effect of British Steel's collapse are already beginning to emerge.
Hargreaves Services, a company based in Durham, northern England, which supplies materials handling and other services, said earlier if the steelmaker ceases to trade, this could reduce its profit before tax in the next full year by about 1.3 million.
British Steel had asked the government for a 75 million pound loan, later reducing its demand to 30 million pounds after Greybull agreed to put up more money, according to a source close to the negotiations.
It had already secured a government loan of around 120 million pounds ($154 million) this month to enable it to comply with the European Union's Emissions Trading System (ETS) rules.
Britain's business minister said it would have been unlawful to provide a loan to British Steel on the terms the company or any other party had made.
Greybull had been negotiating with the government for the loan, a source said, adding the government wanted Greybull out of the picture before putting more money into the business for fear those funds will eventually end up in Greybull's hands.
Greybull are British Steel's only creditor at the holding company level and have secured their loans against its assets.
British Steel also operates a business in France producing rail, and a wire and processing unit in the Netherlands.
The UK government has a chequered history with Greybull, after the collapse of the firm's airline Monarch in 2017 forced the government to repatriate more than 100,000 stranded tourists at a cost of about 60 million pounds.
Greybull also provided backing for the buyout of British high street electronics chain Comet before its collapse in 2012.
"In light of events over the past few weeks, it is clear Greybull needs to do the right thing by getting out of the road and let those who are committed to our industry work to save the business," the union Community said in a statement.
It called on the government to use all options to secure the assets and rebuild the business, adding clean-up costs for the industrial site could end up costing taxpayers more than a billion pounds.
