The Labour government is set to turn down a £200 million loan guarantee request from Harland & Wolff, removing a crucial lifeline from the troubled shipbuilder as it seeks much-needed funding.
The company, which built the Titanic, employs 1,500 workers at its four UK shipyards and had been in talks with Conservative ministers for more than a year for a loan guarantee needed to help lower interest payments on its borrowings.
But the new Labour government has decided that to sign-off the guarantee would be an inappropriate use of public funds, according to people close to the situation.
No formal announcement has yet been made, and people close to the company insisted that discussions were still live. But one Whitehall figure said: “Giving the loan guarantee would be deeply irresponsible.”
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H&W said in a statement it had not yet been informed of any decision “and we stand ready to meet with the new government at their convenience”.
The new government’s decision means the lossmaking company could be forced to refinance on its own terms, and raises questions about the viability of the business that has seen its shares suspended after failing to file audited accounts two weeks ago.
It is also awkward timing for the Labour administration, as it launches a strategic military review that aims to use the defence manufacturing sector to revitalise the UK’s regional economies.
Defence secretary John Healey said on Monday that the sector would form “one of the cornerstones of a new industrial strategy” under the Labour government, highlighting its high-wage jobs and its ability to spread wealth creation beyond London and the South East.
H&W is involved in a £1.6 billion contract led by Spain’s Navantia to build new ships for the Royal Navy.
The business already has a $115 million credit facility with New York-based Riverstone Credit Partners that pays 14 per cent interest and matures at the end of December.
H&W had been hoping to secure a £200 million loan from a group of commercial banks at a lower interest rate, with the government acting as guarantor.
In theory the business — which collapsed in 2019 and was bought out of administration by its current management for £6 million — could seek fresh financing from its existing lender by increasing the current facility or rolling it over.
John Wood, H&W chief executive, has previously insisted that failure to secure the guarantee would not spell the end for the company and that other options remained on the table.
On Tuesday, H&W said the last Conservative government had approved a 100 per cent loan guarantee in principle last December. It added the company only “became aware of government concerns regarding honouring that 100 per cent level only in March 2024″.
The business responded by proposing a reworked 80 per cent deal — a level it said was awarded to “hundreds of companies”.
Tuesday’s statement is the first time the company has acknowledged setbacks in its negotiations with ministers.
There have been concerns about whether the support would be challenged on state aid grounds and unease within government about the extent to which a government guarantee would end up benefiting the company’s Wall Street lender.
“We have shared independent legal opinions explaining why previously identified barriers, including subsidy control, should not prevent the guarantee from being approved,” H&W said on Tuesday.
Former Tory defence and business secretaries had wanted to approve the £200 million loan guarantee but were blocked by then chancellor Jeremy Hunt.
The incoming Labour administration has privately accused the previous government of “negligence” for giving outline approval to the loan guarantee in December, but then leaving the company in “limbo”.
“There is a lot of frustration that the Tory government sat on this decision for months, it was selfish and irresponsible for them to duck the decision and just leave it for the incoming Labour government,” said one official.
But a Conservative party official said: “This is desperate briefing from a Labour party that doesn’t know how to run anything and is just hoping to shout “blame the Tories” for the next five years.”
Riverstone declined to comment. The business department refused to comment, citing commercial sensitivities.
Union leaders have contacted the MoD and were urgently seeking clarification. Officials from Northern Ireland’s government had no immediate information and the region’s investment agency declined to comment. --Copyright The Financial Times Limited 2024
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