Rescue talks between Jaguar Land Rover, Tata Steel and the UK government that may have led to British taxpayers owning stakes in the two businesses have ended, leaving both companies reliant on private financing to weather the economic downturn.
Emergency funding talks with JLR, the UK’s biggest carmaker, and Tata Steel — both owned by Indian conglomerate Tata Group — were recently broken off, according to people briefed on the discussions, after the Treasury concluded that Tata Group had deep enough pockets and did not qualify for taxpayer support.
The emergency financing scheme, dubbed Project Birch, also imposed strict conditions on any lending, which also made the scheme unpalatable for Tata, one of the people said.
JLR in particular baulked at decarbonisation requirements that would have forced the carmaker to accelerate its programme of vehicle electrification and phase out the diesel cars that still make up most of its fleet, according to one person with knowledge of the discussions.
The Treasury said: “We do not comment on individual companies.”
Both businesses remain in talks with government over other areas of potential support such as tax breaks, which in the case of Tata Steel could extend to state loans.
The rescue project was devised as a final lifeline for cash-strapped companies unable to access the UK government’s main coronavirus funding schemes. It involves direct loans from the state that may then be turned into equity stakes in certain circumstances, but only a handful of businesses have reached the final round of talks.
The UK subsidiary of Spanish steelmaker Celsa is the only business that has taken a loan under the scheme so far.
Tata Steel employs 8,000 people in the UK and runs the country’s largest steelworks in Port Talbot, south Wales. The business, which has failed to break even for a decade, was seeking an injection potentially running into several hundred million pounds.
The company has examined replacing its polluting blast furnaces in Port Talbot with cleaner electric-powered furnaces in the hope of securing state funding.
JLR, which employs more than 30,000 in the UK and lost close to £1bn between January and July, had also been seeking significant support. It was excluded from the Bank of England’s finance support scheme because of its poor credit rating, making it expensive for the business to borrow money on the open markets.
In June, the carmaker’s Chinese subsidiary raised £560m from a group of Chinese banks, which demonstrated to Treasury officials the business still has other lending resources open to it.
The Treasury and business department have made clear since the start of the process that the government would only act to rescue individual companies if their failure would disproportionately harm the economy.
Rishi Sunak, chancellor, insisted that only companies that had exhausted all other options — including raising capital from existing investors — would be eligible. He has also indicated he does not want to end up taking taxpayer stakes in a large number of troubled companies.
Under the government’s loan guarantee schemes, commercial lenders have already provided more than £40bn of debt to companies.
Additional Reporting by Michael Pooler