Harland & Wolff is facing a critical situation after uncertainty arose over a vital government support package for the iconic Titanic shipyard’s owner.
The company’s share price dropped sharply on Wednesday following news that the Treasury might reject a £200 million taxpayer-backed loan guarantee that was promised in December.
According to Harland & Wolff’s latest annual report, the company’s auditors have expressed concerns that it may not be able to continue operating without this financial support.
Sources from Whitehall have indicated that the loan guarantee, which has been criticized as a covert state bailout, is jeopardized by legal issues concerning state aid regulations.
This uncertainty casts doubt on Harland & Wolff’s capability to fulfil a £1.6 billion contract for constructing three Royal Fleet Auxiliary support ships, intended to supply Britain’s aircraft carriers and warships with ammunition and provisions.
The contract, initially awarded to Spanish shipbuilder Navantia, may be at risk if Harland fails to meet its commitments, potentially requiring the ships to be constructed in Cadiz instead.
Historically, no Royal Navy warship has been built outside the UK.
On Wednesday, a defence source from the government mentioned that discussions about the loan guarantee for Harland are still in progress, and the company has refuted claims that the deal is off.
The defence source also noted that if Harland were to fail, it is highly unlikely that any warships would be constructed abroad. They further stated, “Regardless of the process’s outcome, even in the worst-case scenario, we believe this shipyard has a viable future given the numerous ships ordered.”
These developments represent a setback for Defence Secretary Grant Shapps, who recently proclaimed a “golden age of shipbuilding” in Britain.
Mr. Shapps has engaged in discussions regarding the future of Harland & Wolff with Jeremy Hunt, Britain’s Chancellor, amidst a dispute between the Ministry of Defence and the Treasury concerning the company’s financing, according to The Times.
In response to the report, Harland & Wolff issued a clarification in a stock market announcement on Wednesday, asserting that claims suggesting Mr. Hunt would block the loan funding were “misleading and inaccurate.”
The controversy revolves around a £200 million loan guarantee for the company, which was sanctioned by ministers at the end of last year. This guarantee, to be issued by UK Export Finance, a government agency, still requires clearance under state aid regulations.
Upon approval, the company will receive an export development guarantee (EDG), which is defined on a government website as “a guarantee to your lender in support of finance facilities to unlock working capital.”
Typically, such export finance loan guarantees necessitate that companies secure a portion of capital themselves through banks; however, in this instance, the Government has proposed covering 100% of the borrowing.
This move follows Harland accruing substantial high-interest debt from New York-based Riverstone Credit Partners in recent years, reportedly amounting to $100 million.
An expert in international trade suggested that UK Government lawyers, being “risk averse,” might hesitate to approve the loan guarantee for Harland & Wolff due to concerns about potential complaints from the European Union regarding unfair competition.
John Wood, CEO of Harland & Wolff, commented, “Our EDG application has not been rejected and is still in process. I expect to provide a more comprehensive update on our refinancing efforts in the coming weeks.”
Following these developments, the company’s share price dropped significantly, by as much as a third on Wednesday morning.
A government spokesperson stated, “We continue to engage with Harland & Wolff on the export development guarantee.”
