Credit watch for UK officials over Covid loans as pandemic clouds persist

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British officials are on alert for companies defaulting on state-guaranteed Covid-19 loans in the next stages of the pandemic, according to the head of the public body overseeing part of the emergency loan.

Charles Donald, UK government’s chief investment officer, said he was playing a “big risk oversight role for the Treasury” in the government’s emergency loan portfolio.

This included the analysis of “potential pressures that will be placed on the expected repayment schedule.” It’s what I would call credit monitoring, ”he said.

“We are watching it very closely,” he added. “Who knows what will happen next in terms of the pressures of the next stage of the pandemic on different sectors? ”

Donald said management of the Covid loan portfolio focused on two of the emergency programs: the Bank of England’s Covid Corporate Finance Facility and the Coronavirus Large Business Interruption Loan Program, which features state guarantees of up to 80%.

UKGI also contributed to the Treasury’s “Project Birch” plan to acquire stakes in critical companies whose operations had been affected by the pandemic.

In the end, only one company benefited: South Wales steelmaker Celsa, which was granted a senior debt facility. But Donald said that did not reflect the number of inquiries from companies seeking government help. In almost all other cases, he said, a private sector solution has been found.

Donald, a former Credit Suisse banker who became chief executive as the pandemic took hold in March 2020, confirmed the program has ended. “There are a lot of things that have been done, not necessarily visible. Often you find that there are other solutions.

UKGI’s broader role before the pandemic was to manage a £ 945 billion portfolio of state-owned companies wholly or partially owned, including NatWest, Channel 4, the Post Office, Land Registry and Urenco , the supplier of nuclear fuel.

It provides a level of knowledge of the private sector, in particular by calling on external experts, to advise and implement the policy of the ministries.

Charles Donald has signaled that he expects a further sale of NatWest shares by the UK government this year © Jason Alden / Bloomberg

Speaking to the Financial Times ahead of Thursday’s announcement that the government would sell more of its stake in NatWest over the next 12 months, Donald said he expected further divestments of the stake in the bank this year given strong equity markets and the removal of dividend restrictions.

In May, UKGI sold £ 1.1 billion of NatWest shares, its second divestment in two months. This reduced the government’s stake to less than 55%, 13 years after the bank, then known as the Royal Bank of Scotland, was nationalized and placed under state control during the financial crisis.

Asked about further sales of NatWest shares, he said, “I would expect that, but it’s still subject to conditions. After a certain lull, we have made some progress this year. Our obligation is to ensure that we are monitoring sales opportunities at all times on a value-for-money basis.

He said he “sensed a fairly healthy market” and that the government’s removal of “safeguards” limiting dividend payments by UK banks was also “very positive” for potential returns.

UKGI is close to finalizing the sale of other financial crisis era assets formerly owned by Bradford & Bingley and Northern Rock under the UK Asset Resolution program.

The UK government is seen by some in the business world as becoming more interventionist, in part after accumulating debt and equity stakes to support businesses in the pandemic.

This week, the Future Fund: Breakthrough was launched to invest up to £ 375million in UK start-ups, illustrating the government’s willingness to expand the state’s exposure to promising private companies.

“The pandemic clearly created a particularly difficult situation where support was needed,” Donald said. “There’s part of a timing coincidence around a lot of these things. . . so it’s definitely busier.

Donald said the UKGI is also setting up a unit to better understand the government’s contingent liabilities – FY 2018-19 figures put the figure at £ 377.5 billion – in a bid to reduce the exhibition.

“One would hope and expect that, therefore, these contingent liabilities are not necessarily contained, but at least better understood, so that in the end the taxpayer does not have as much exposure as [they] maybe right now.

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