The Port Talbot steel plant in Wales © Getty

The government is prepared to re-nationalise up to a quarter of Tata Steel and to provide “hundreds of millions of pounds” in debt financing for someone to buy its UK plants, Sajid Javid has said.

The business secretary said the government is prepared to take a minority equity stake of less than 25 per cent in the hope of saving steel plants such as Port Talbot, which is heavily lossmaking and could close if no buyer is found in the next few weeks.

The last Conservative government to authorise such a move, representing a part-nationalisation, served under Ted Heath in the 1970s.

“This government is committed to supporting the steel industry to secure a long-term viable future and we are working closely with Tata Steel UK on its process to find a credible buyer. The detail of our commercial funding offer is clear evidence of the extent of that commitment,” Mr Javid said on Thursday

The FT recently revealed that the government was offering debt of up to £200m at an annual interest rate expected to be about 3 per cent.

Mr Javid said last week that the government could “co-invest” with a private partner in a rescue bid for the plants.

On Thursday, the business department said the government “has been clear that since Tata announced its intention to divest its UK operations, it is ready to support a credible private buyer of Tata Steel UK”.

It added that the financial support package would be “tailored to the purchaser’s strategy and financing needs. However, it is expected that all, or the large majority, will be through the provision of debt financing”.

An attempt by the state to buy a stake in Port Talbot would almost certainly clash with EU state aid rules.

A spokeswoman for David Cameron, prime minister, said on Thursday that any equity stake would be a minority one to support the purchaser. “We are not seeking control of the company. We will be investing on a commercial basis,” she said.

Whether that would fall foul of EU rules would depend on the identity of the private sector partner, she said.

Tata Steel has privately set a date of May 28 to negotiate a viable sale or it will close down its UK arm.

The Indian steel group announced in March that it would sell its British division, either as a whole or in parts, after making substantial losses for several years. Mr Javid has since visited Tata in Mumbai twice to discuss how the government might help the process.

The business secretary has resisted calls by the Labour party for a full nationalisation of the steel industry to save the estimated 40,000 jobs that it supports directly and indirectly.

Senior figures inside Tata are not optimistic that a credible industry bid will be made for the business, which is losing about £1m a day.

So far, the only corporate approach for the business is from Liberty House, a commodities trading company that recently took on two small steelworks in Scotland from Tata Steel. Industry figures are privately sceptical that Liberty has the appetite and the financial clout to take on such a large, lossmaking business.

Senior executives are trying to piece together a management buyout — with guidance from Sir Terry Matthews, a Welsh-born technology billionaire — but they only have weeks to raise the finance needed. They are also hoping for a tax break from ministers involving changes to the Enterprise Investment Scheme for small investors.

Mr Javid last week privately met Sir Vince Cable and Lord Mandelson, his Lib Dem and Labour predecessors, as he tries to grapple with one of the biggest crises faced by the government.

One of Britain’s leading business groups spoke against the government’s proposal, arguing that a similar move for MG Rover in 2005 “proved fruitless” and left the taxpayer with millions of pounds of losses.

“Taking an equity stake in the steel plants would be particularly risky, giving the government the lowest chance of getting its money back,” said Simon Walker, director general of the Institute of Directors.

“We urge the business department to think long and hard about the precedent it would set if it part-nationalised the steel industry. The question is not whether the plants can be kept running for a little longer, but whether there can be any certainty that their long-term viability justifies such a rare and uncertain move.”

Additional reporting by Michael Pooler

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