finance

Investor plans £15bn support for UK companies toiling with crisis loans


One of the UK’s biggest investors in smaller companies is planning a £15bn fund to help bail out thousands of businesses that will struggle to repay state-guaranteed coronavirus loans.

Stephen Welton, chief executive of Business Growth Fund, which is backed by the big UK banks, said he was talking to investors, the government and his shareholders about proposals for the public-private fund.

Mr Welton warned that the UK faced a more devastating economic crash than the last financial crisis, pointing to the threat of “a totally unsustainable debt mountain” following the state-backed bailout schemes. 

He said new equity would be urgently needed to buy out this debt when borrowers did not repay it, predicting “a lot of businesses will fail and a lot of people will be made redundant”.

“Some sectors will never get back to where they were in 2019,” he said. “Business will emerge indebted. There is a risk of turning an economic crisis into a banking crisis.”

The fund would aim to help viable businesses that have tapped the government’s coronavirus business interruption loan scheme (CBILS), through which struggling small companies can borrow up to £5m.

Senior bankers — who were encouraged to lend to companies struggling to survive — warn that they may be left with mounting bad debts as many borrowers are expected to struggle to repay loans when they emerge from the pandemic.

Rob Law, chief executive of Trunki. The children’s travel equipment maker is one of the companies in which the Business Growth Fund has a stake © FT Commission

More than 43,000 businesses have borrowed in excess of £8bn through CBILS, which carries an 80 per cent guarantee from the government. Mr Welton said this could reach as high as £20bn before the end of the crisis.

The proposal suggests private sector investment be matched by state money in a similar format to the Future Fund, which the government launched this month to support start-ups.

Leading economists and former policymakers have called for the government to step in to help refinance the UK corporate sector during the crisis with either a vehicle to convert debt into equity stakes or a “bad bank” to hold debt.

One proposal suggested by lobby groups such as TheCityUK would be to create a company such as 3i, originally set up by the government and banks after the second world war to recapitalise British businesses.

The BGF also owns a stake in UK meal-kit provider Gousto
The BGF also owns a stake in UK meal-kit provider Gousto

BGF was created in a similar vein by HSBC, Barclays, Lloyds, RBS and Standard Chartered after the financial crisis to invest in small and medium-sized enterprises (SMEs), in particular at the start-up and growth stages, by taking minority, non-controlling stakes. It has invested more than £2bn through 16 regional investment offices in the UK.

Mr Welton said many businesses would not be able to pay the wages of staff coming off the government furlough scheme, which would lead to insolvencies and redundancies in the second half of the year. 

Many such companies will also have used state-backed loans that they are unable to repay. They will either default, according to Mr Welton, or turn into “zombie companies” unable to invest in operations as they seek to cover growing debts. 

The BGF, which was set up in 2011, could also bring in a new investor of its own for the first time since its launch. “We have been approached by a couple of institutions,” said Mr Welton, who pointed to increasing demands on its balance sheet.

Two-thirds of the small businesses backed by the BGF have used state-aid schemes to help survive the pandemic. It owns stakes in companies such as Gymbox, meal-kit provider Gousto, British ceramics manufacturer Emma Bridgewater, restaurant chain Barburrito, telecoms group Olive and children’s travel equipment maker Trunki.

BGF said SMEs would need about £15bn in equity, which would mean at least £7.5bn from banks, pension funds, insurance companies, sovereign wealth investors and larger angel investors alongside a matched amount from the government.

The Treasury said both of its coronavirus lending programmes had been a success, pointing out that, including its Bounce Back Loan Scheme, more than 640,000 businesses had received loans worth more than £26bn. It added: “We have always been clear that these are repayable, government-backed loans, not grants, and that approvals are a decision for lenders.”



READ SOURCE

Leave a Reply