Forgemasters ‘in secret £30m loan deal’

Pouring a casting at Forgemasters
Pouring a casting at Forgemasters

Three of Britain’s industrial titans have handed a secret £30m support package to Sheffield Forgemasters, Sky News is reporting.

The Ministry of Defence is said to have brokered a deal under which BAE Systems, Babcock International and Rolls-Royce Holdings agreed to underwrite bank loans to the steelmaker, which is a critical supplier to the Trident nuclear submarine programme.

Ultra-large casting at Forgemasters

Ultra-large casting at Forgemasters

Forgemasters last week announced it was cutting up to 100 jobs after posting a £9.4m loss due to ‘storm’ hitting the sector including a decline in oil and gas exploration, high energy prices and slowing global economic growth.

At the time, chief executive Graham Honeyman confirmed the firm had taken out a loan which would fund the business through to the end of March 2017.

Sky News is reporting sources that say Submarine Enterprise Partners - the organisation delivering the replacement fleet of nuclear submarines and in which BAE, Babcock and Rolls Royce are the corporate stakeholders - had agreed to provide guarantees for just under £30m of loans provided by the US bank Wells Fargo to the firm.

The MoD is said to have intervened to negotiate a solution following reports in November that a Chinese state-backed steelmaker wanted to invest in Sheffield Forgemasters - a prospect which caused deep unease in Whitehall.

The alleged move underlines the critical nature of the reactor casings made by the company for Britain’s nuclear submarines.

In Sheffield Forgemasters’ latest set of accounts - which were overdue when filed this week at Companies House - chairman, Tony Pedder, said: “The storm clouds which seem to gather periodically over the steel and steel-related sectors are once again evident.

“Of particular concern has been reduced activity in the traditional oil and gas sector, with oil prices down to a level that is deferring much potential new investment.

“This combined with a slowing of global economic growth, has led to a scarcity of orders for our engineering products and an international collapse in steel prices.”

The accounts revealed an operating loss of £9.4m for the 18 months to December 2014, although Mr Pedder said Sheffield Forgemasters had “concluded an extension to our financing facility.”

Company executives have signalled that they are open to the idea of attracting additional external investment, although they have insisted that such a move is not essential.

Sheffield Forgemasters traces its roots back to 1805, making it one of Britain’s oldest surviving industrial groups, and it continues to employ roughly 700 people.

A BAE spokeswoman said: “BAE Systems works closely with more than 7,000 organisations in our UK supply chain to develop and manufacture advanced defence and security products for our customers.

“Sheffield Forgemasters International is a supplier to our submarines business. The terms of our contractual relationships with our suppliers are confidential.”

Babcock echoed that statement, saying: “Babcock works closely with an extensive supply chain across the UK to ensure we deliver best value, continuity and surety for our customers. Sheffield Forgemasters International is a supplier to our business. However, contractual arrangements with our suppliers are confidential.”

Rolls Royce declined to comment, while a spokesman for Sheffield Forgemasters said that its financing arrangements were confidential.

The MoD could not be reached for comment.

Unite, the country’s largest union, today welcomed the news that Babcock International, BAE Systems and Rolls Royce Holdings had agreed to underwrite bank loans to the steelmaker in a deal, it is understood, that was brokered by the Ministry of Defence.

Unite assistant general secretary for manufacturing Tony Burke said: “In these days of great uncertainty for steelworkers, this is, at least, some good news and a much-needed lifeline for a vitally important business.

“We applaud Babcock, BAE and Rolls Royce for investing in skilled UK workers and our UK steel sector. The thousands of workers, who depend on Forgemasters in some way for their job, will rest a bit easier today, but we are still deeply concerned about the plight of the UK steel sector more generally.

“It is in the midst of a crisis that could threaten its very existence, so we say to the government, yet again, take a lead from these businesses and invest in our steelmakers.

“It has been depressing and shameful to see contracts that should have gone to UK steel businesses being passed by the government to our overseas competitors.

“This has to end now – we cannot have the government’s procurement processes pose a threat to a vital sector as it fights off attacks to its future from cheap Chinese imports and high business costs.”