A Labour Party victory in the UK could result in funding and execution uncertainties at Tata Steel’s Port Talbot plant, and if the £500-million support is delayed, it could lead to higher capital expenditure (capex). Separately, the Dutch government’s grant to support the green transition would be much smaller at €1.5-2 billion, according to a CreditSights report.
“We are still optimistic and expect a turnaround at Tata UK, though we believe a Labour Party victory could induce further funding and execution uncertainties; our main concern is if the proposed £500-million support package is delayed, reduced, or scrapped, given it has not been signed yet, resulting in a higher capex burden for Tata UK,” the report stated.
A delay, reduction, or scrapping of the package could further restrain meaningful credit metric and free cash flow improvements, it added.
CreditSights outlined three possible scenarios upon a Labour Party victory. First, the firm might be forced to continue operating one blast furnace (scheduled to be shut down in September) through the transition period to minimise job cuts, which would result in higher financial losses estimated by Tata at £1 million per day. Second, Tata might proceed with both blast furnace closures, with the grant disbursement delayed, reduced, or scrapped. Lastly, the firm could go ahead with its blast furnace closures and receive the grant as agreed.
The funding agreement is at an advanced stage of approval, with management expecting it to be signed “within the next few weeks or so,” although it is non-binding at this stage.
If disagreements between the Labour Party and Tata result in a slashed or revoked grant, Tata will have to fully fund the £1.25 billion transition plan on its own. This could further restrain meaningful credit metric and free cash flow improvements for Tata over the next 3-4 years, the report noted, adding that Tata has “solid” funding access.
Earlier on June 11, Tata Steel said it would continue to pursue the planned closure of heavy-end assets and the restructuring program at Port Talbot in the UK. Tatas had sought support from the UK government for its earlier agreement to invest £500 million for the EAF project, with the current heavy-end assets at Port Talbot nearing the end of their operational life and being unstable.
Regarding the transition grant from the Dutch government, CreditSights indicated the package would be smaller. “A large €3 billion funding package is definitely welcome from a credit standpoint, though we expect the final package size to be realistically smaller at around €1.5-2 billion,” it said, adding that it expects the blast furnace closure at Ijmuiden to stem losses at the Netherlands unit.
Various news media stated that the Dutch government was considering a grant of up to €3 billion, while Tatas has not commented.
“We also expect Tata Netherlands’ funding access to improve as a gradual transition towards cleaner EAF steel production could improve ESG investor sentiment,” it added.
Tata is in discussions with the Dutch Government over potential funding support for decarbonisation efforts at the Ijmuiden plant.