Tata tests Sunak’s model

WHEN it comes to bailing out firms affected by Covid- 19, rishi sunak is no pushover.

As someone who spent much of his pre-Commons career in private equity, the Chancellor has a good grip on likely survival candidates, and will be keen to make sure all private sector options have been exhausted.

There was reluctance in Whitehall to come to the rescue of Virgin Atlantic because there were other routes.

But the case for saving Tata steel’s operations in Port Talbot, and 8,000 jobs, is overwhelming. steel is a strategic industry, essential to the national defence, which is why it has been in and out of public ownership down the decades. it is a vital part of the supply chain for motor manufacturing, construction and infrastructure during a period of national renewal. it will be hard to quibble if sunak goes ahead with a £500m cash infusion in exchange for debt which may eventually turn into equity.

in March, when eyes were diverted by an incipient pandemic, British steel at scunthorpe was rescued from liquidation by China’s Jingye Group. For similar strategic reasons there was a case for the Government, rather than a Beijing entity, to be saviour of the last resort. What has been missing in the debate about the Tata steel bailout is any sense that the company’s ultimate controlling investors at india’s Tata Group are taking any responsibility for a struggling enterprise in a health emergency.

Tata is among india’s most impressive businesses with revenues of $113bn (£91bn) in the 2018-19 financial year, employing 720,000 worldwide, and is the sub-Continent’s fourth largest company, with a market capitalisation of £16bn. its ownership structure is complex because many of the enterprises displaying the core Tata brand have separate stock market listings and autonomy. Nevertheless, if it was deemed correct that richard Branson should be first in line to keep Virgin Atlantic in the skies, then it is also right to ask questions as to what role Tata Group and its ultimate owners, charitable foundations established by ratan Tata and his family, might want to play in keeping Port Talbot functioning.

sunak and Whitehall officials need satisfactory answers before committing taxpayer funds.

Battle Royal

ANOTHEr former state enterprise in difficulty is the royal Mail. When it was privatised in 2013, investors fell over each other to buy the shares, and there was an inquiry into why it was sold so cheaply. seven wasted years on, there is a never- ending battle with the unions. The overpaid former CEO rico Back chose to step down in the midst of the virus peril from the comfort of his swiss family home.

And royal Mail is still struggling to come to terms with the opportunity of a first- class UK parcels service, in spite of the surge in digital shopping and ownership of one of Europe’s most successful parcel outfits GLs.

into this vacuum has stepped former BA boss Keith Williams, who knows about challenging union power. As interim executive chairman, he is going for the low-hanging fruit by axing 2,000 management staff and the 2020 dividend. Potentially this will send a message that everyone is in crisis together. Posties, some of whom lost lives in the pandemic, might not see it that way. Williams’ other cash conserving move is to slash capital expenditure by £300m.

That sounds fine, but maybe that money might have been better invested in speeding up modernisation of the parcels service, which is critical to future-proofing the enterprise. it should come as no surprise to anyone at royal Mail that ‘snail mail’ has seen huge declines exaggerated by Covid-19 in the last couple of months.

But that is no excuse for any attempt to tear up the Universal service Obligation. Postal services, like sanitation and the utilities, are a crucial element of the social contract.

Card trick

WE have become so used to Germany as a pandemic pin-up that it is easy to forget rhineland-Westphalia capitalism has shortcomings. The collapse of Wirecard into insolvency is an embarrassment on an Enron scale. Valued at £18bn at its peak (more than Deutsche Bank!), it is now worthless and becomes the first ever member of the DAX to collapse.

its demise, and potential impact on Wirecard’s UK arm and the whole Fintech sector, will require some quick thinking by the Financial Conduct Authority. something that is not its strong point.