Harland & Wolff has been plunged into crisis after doubts emerged over a crucial government support package for the Titanic shipyard owner.
The Belfast-based company’s share price tumbled on Wednesday amid reports the Treasury was poised to block a £200m taxpayer-backed loan guarantee promised in December.
In its latest annual report, Harland & Wolff’s auditors warned the company may not survive without the money.
Whitehall sources confirmed that the guarantee – which critics previously branded a “backdoor” state bailout – was at risk amid legal complications related to state aid rules.
It has thrown into doubt Harland & Wolff’s ability to deliver on a £1.6bn contract to build three Royal Fleet Auxiliary support ships, which will ferry ammunition and food supplies to Britain’s aircraft carriers and warships.
That deal was subcontracted by the Spanish shipbuilder Navantia. If Harland cannot fulfil its obligations, there is a risk the ships would have to be built in Cadiz instead.
No Royal Navy warship has ever been built abroad previously.
On Tuesday, one government source insisted discussions were “ongoing” about Harland’s loan guarantee, while the company denied the deal had been cancelled.
The Whitehall source added that if the company did collapse, “we would still aim to build the ships in the UK”.
However, they could not say where there was spare capacity.
The complications will serve as a blow to Grant Shapps, the Defence Secretary, who just days ago hailed a “golden age of shipbuilding” in Britain.
Mr Shapps has already held discussions about Harland & Wolff’s future with Jeremy Hunt, Britain’s Chancellor, amid a row between the Ministry of Defence and the Treasury over the company’s funding, The Times reported.
Harland & Wolff hit back at the report in a stock market announcement on Wednesday, claiming that suggestions Mr Hunt was set to block the loan funding were “misleading and inaccurate”.
The issue centres on the £200m loan guarantee for the company, approved by ministers at the end of last year.
It will be provided by UK Export Finance, a government agency, but must still pass state aid checks.
Once approved, the company will be awarded an export development guarantee (EDG) – described on a government website as “a guarantee to your lender in support of finance facilities to unlock working capital”.
However, while export finance loan guarantees usually require companies to secure some capital themselves via banks, in this case, the Government has proposed guaranteeing 100pc of the borrowing.
It comes after Harland racked up high-interest borrowings from New York-based Riverstone Credit Partners in recent years, reportedly worth $100m.
One expert on international trade suggested that “risk averse” UK Government lawyers may be wary about approving a loan guarantee for the company, for fear of triggering a complaint by the European Union of unfair competition.
John Wood, chief executive of Harland & Wolff, said: “Our EDG application has not been rejected and continues to be a work in progress.
“I expect to be providing a fuller update on our refinancing plans in the next few weeks”.
The company’s share price plunged by as much as a third on Wednesday morning.
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