Turkish Delight: Turkey’s military pension fund set to buy British Steel

August 27, 2019

3 min read

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What's going on here?

Turkey’s military pension fund, known as Oyak, has seen its subsidiary Ataer enter into exclusive talks with British Steel with plans to finalise the acquisition by the end of the year, following due diligence checks.

What does this mean?

Ataer was recently chosen by the British government as the preferred bidder for Britain’s second-largest steelmaker that employs 5,000 in Scunthorpe and a further 20,000 elsewhere in the supply chain. 

Back in 2016, the private equity group Greybull Capital bought Tata Steel Europe (that they would rebrand as British Steel) for £1 from India’s Tata Steel. But more recently, due to the EU’s suspension on the issuance of new carbon credits (a system that is designed to limit carbon emissions) to UK companies, British Steel needed a loan worth £120 million from the government. British Steel had sold off most of its carbon credits several years ago for a cheaper price than they are currently worth, and in May 2019 needed a £100 million government loan to pay off what it owed on the carbon credit scheme. Greybull and the British government could not reach an agreement when British Steel asked for a further £30 million, so British Steel was put into compulsory liquidation on 22nd May. 

The Department for Business, Energy, and Industrial Strategy (BEIS) then signed off on a support package worth £300 million for bidding. The holding company (a company that is created to manage companies in which it has a controlling number of shares) Ataer were known to be the front-runners (see our article on that here).  Now exclusive talks are underway between Ataer, which owns almost 50% of Turkey’s biggest steel producer. These talks have received a positive reaction from the GMB Union, the trade association UK Steel and the Steelworkers’ union Community. The Business Secretary, Andrea Leadsom also described the talks as an “important step” in securing the future of British Steel.

What's the big picture effect?

Greybull Capital has a history of taking on companies with irreparable damage. The private equity partnership aims to make money by investing in failing companies and turning them around. It had charged British Steel a £3 million “management fee” in 2017 and 2018, which they claim is 80% less than what Tata Steel (British Steel’s previous owner) charged. Examples of some of Greybull’s success stories include its turnaround of Metalrax (a specialist in non-stick coated steel), Arc Specialist Engineering and Plessey (now an LED tech specialist). However, Greybull has also had some spectacular failures. Having bought a majority stake in Monarch Airlines in 2014, the collapse of the airline cost the taxpayer £40.5 million. The firm’s 2015 investment in My Local saw the convenience chain less than a year later with 1650 redundancies. So, can Ataer do any better? 

The aim of British Steel’s sale is to both protect jobs and the break-up of the firm into fewer steel producing locations. Ataer is aiming to increase production at the Scunthorpe site and invest in the steel works’ transition to gas power over the upcoming decade. The Turkish investor does also plan to reduce costs, possibly via some job cuts.

Nevertheless, there are some larger issues that Ataer will have to face. Increased competition from China and Brexit uncertainty that has left overseas customers unsure of the tariffs that will apply to British steel exports are both making the British steel industry uncompetitive. Yet the steel industry in the UK has been in decline due to high energy costs from green taxes and a lack of government support that gives European competitors a significant advantage. This lack of government investment has seen jobs reduce from 323,000 in 1971 to just over 30,000. Following the closure of the Redcar steelworks in 2015, the UK now relies on just two blast furnace steelworks to revive the sector. So, will Ataer be able to solve these problems in the long run?

Report written by Will Holmes

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