The Labour government appears ready to reject a request from ailing shipbuilding firm Harland & Wolff for a loan guarantee of £200 million, which the company had been counting on to ease its financial woes. The organisation, famous for building the Titanic, employs 1,500 personnel across four shipyards in the UK. It had been in ongoing discussions for more than a year with Conservative Ministers seeking financial support to manage its interest payments more effectively.
However, Labour’s regime seems to have reached the decision that approving this guarantee would not constitute responsible use of public finances, according to people familiar with the matter. Despite no official communication having been issued, there is a prevailing belief among insiders that the government’s position is firm. One Whitehall representative even branded providing the guarantee as “deeply irresponsible”.
Harland & Wolff noted that it has not been informed of a definitive decision yet, stating that it is available to meet with the government at their earliest convenience. The government’s stance puts the company in an uncertain position, as it may have to restructure its own finances and examine the viability of its business. The company’s shares were recently suspended due to a delay in filing its audited accounts.
This development emerges at a somewhat inconvenient time for the Labour administration as it embarks on a strategic review of the military which includes energising UK’s regional economies through the defence manufacturing sector. During an announcement on Monday, Defence Secretary John Healey highlighted that this sector, with its high-end jobs and potential for wealth spread beyond London and the Southeast, would be a crucial element of the new industrial strategy under the Labour government.
The shipbuilder is currently involved in a £1.6 billion contract led by Spain’s Navantia to manufacture new vessels for the Royal Navy. It already possesses a $115 million credit facility from Riverstone Credit Partners, based in New York, with a 14% interest rate, due to mature by the end of December. H&W had been aiming to secure a £200 million loan with more favourable interest from a group of commercial banks, with the government serving as a guarantor. H&W could potentially explore alternate options including seeking fresh financing through expanding its current credit facility with Riverstone or rolling it over. John Wood, the CEO of H&W, pointed out that the company would explore alternative strategies if the loan guarantee did not come through.
Last Tuesday, H&W indicated that the preceding Tory government had provisionally sanctioned a loan guarantee totalling 100% in December. However, the firm only learned of the government’s qualms about upholding this full guarantee in March 2024. Consequently, an 80% agreement was put forth by the business, a measure the firm stated was granted to countless other organisations.
For the first time Tuesday, the company recognised obstacles in its discussions with ministers. There’ve been misgivings over the prospect of the aid being contested on state aid terms, as well as discomfort within the administration about the degree to which a government assurance would profit the firm’s Wall Street lender.
H&W expressed on Tuesday that they convened independent legal viewpoints outlining why previously discovered impediments, including subsidy management, ought not to obstruct the guarantee’s approval. Former conservative defence and business secretaries aimed to approve the £200 million loan assurance, yet were thwarted by then chancellor Jeremy Hunt.
The succeeding Labour administration has privately reproached the former government for its “carelessness” in granting preliminary approval to the loan assurance in December, and subsequently leaving the firm “in limbo”. One official expressed extreme exasperation about the Tory government stalling on this decision for a substantial duration; they claimed it was egotistical and negligent for the Tories to evade the decision, leaving it to the Labour administration to handle.
Nonetheless, a Tory party official blamed the Labour party for not possessing adequate governing skills and accused them of intending to place the blame on the Tories for the ensuing five years. Business department and Riverstone both refused to comment due to trade secrets.
Union representatives were urgently in touch with the MoD for clarification. Northern Ireland government officials had no immediate insight, and the local investment agency decided against commenting. It is subject to copyright by The Financial Times Limited 2024.