UK’s Liberty Steel is requesting prepayments from customers for steel orders to ease some of the pressure on its cash flow after its key financial backer, Greensill Capital, collapsed a few weeks ago.
The cashflow challenge is more pronounced in Liberty’s specialty steel division where demand has reduced by 66pc as the aerospace industry struggles to recover. However, the steelmaker is confident about the specialty business being able to facilitate the prepayment arrangements as the quality of products is difficult to replace by consumers.
On the other hand, some companies may consider prepayment as risky given the prospect of insolvency since Liberty Steel is also facing tighter financing from creditors and suppliers.
The UK government is also planning to aid Liberty’s 12 steel plants in the UK which employ over 5,000 workers, Prime Minister Boris Johnson has indicated, by potentially purchasing more UK-sourced steel for a major infrastructure building program that will progress over the next few years. Projects include Hinkley Point nuclear power station, HS2, and expansion of the UK’s wind energy infrastructure.
On the other hand, UK’s opposition Labour party has called on the government to publish details of the larger loans and to place scrutiny on loans made to Liberty Steel or GFG Alliance companies directly or through Greensill Capital over concerns on corporate default risk and fraud.
The British Business Bank has also indicated it may withdraw the government guarantee from Sanjeev Gupta’s company loans as questions arise about how Greensill received loans and was approved as a lender for government-backed loans.