Officials are wary of the risk of companies defaulting on government-backed Covid loans in the next stages of the pandemic, according to the head of the government agency overseeing part of the portfolio provided under the emergency scheme.
Charles Donald, head of UK government investment, said he is performing “a monitoring role for the treasury of major risks” in the government’s loan portfolio until its final maturity in March 2022.
This included an analysis of the “potential pressure that will have on the expected repayment schedule. This is what I would call credit supervision, ”he said.
“We’re just watching this very closely,” he added. “Who knows what will happen next in terms of the pressure of the next stage of the pandemic on various sectors?”
Donald said the management of Covid’s loan portfolio has focused on two emergency schemes: the Bank of England’s Covid Corporate Finance Facility and the Coronavirus Large Business Interruption Loan Scheme, which provides for government guarantees of up to 80 percent.
UKGI also helped with Treasury’s Project Birch plan to acquire stakes in critical companies affected by the pandemic.
Ultimately, only one company benefited: the South Wales-based steel company Celsa, which was granted a preemptive credit line. But Donald said this does not reflect the number of requests from companies seeking government assistance. In almost all other cases, he said, a solution was found in the private sector.
Donald, a former Credit Suisse banker who became CEO when the pandemic broke in March 2020, confirmed that the scheme had ended. “A huge amount of everything was done that was not always noticeable. Often you find that there are other solutions. ”
UKGI’s broader role before the pandemic was to manage a £ 945 billion portfolio of all or part of state-owned enterprises, including NatWest, Channel 4, the post office, land registry and Urenco, a nuclear fuel supplier.
It provides a certain level of private sector knowledge, including the use of external experts to advise and implement government policies.
In a wide-ranging interview with the Financial Times, Donald said he expects further sales of NatWest shares this year given the strength of equity markets and the lifting of dividend restrictions.
May UKGI sold out £ 1.1bn in NatWest stock, second sale in two months. This reduced the state’s stake to 55% 13 years after the bank, then known as the Royal Bank of Scotland, was nationalized and brought under state control during the financial crisis.
When asked about further sales of NatWest shares, he said: “I expected this, but it always depends on the conditions. After a bit of a lull this year, we have made little progress. It is our responsibility to make sure we continually monitor sales opportunities based on value for money. ”
He said he “feels like a perfectly healthy market” and that the government’s removal of “barriers” that limit UK bank dividend payments is also “very positive” for profit potential.
UKGI intends to complete the sale of other financial crisis-era assets that were once held by Bradford & Bingley and Northern Rock under the UK Asset Authorization Scheme.
Some in the business community view the UK government as more proactive, in part after accumulating debt and equity stakes to support businesses amid the pandemic.
The Breakthrough Fund for the Future was launched this week to invest up to £ 375m in UK startups, signaling the government’s commitment to expanding government access to promising private enterprises.
“The pandemic clearly created an extremely difficult situation where support was required,” Donald said. “It’s kind of a coincidence in timing for a lot of these things. … … so it’s definitely more busy. “
Donald said UKGI is also setting up a unit to better understand the government’s contingent liabilities – £ 377.5 billion as of fiscal 2018/19 – to mitigate risk.
“One would hope and expect that these contingent liabilities would not necessarily be limited as a result, but at least better understood, so that ultimately the taxpayer would not have as significant risks as [they] maybe right now.