Mumbai: The British government is willing to purchase as much as 25% of Tata Steel Ltd’s UK business and offer support worth hundreds of millions of pounds to potential buyers of the steel maker’s UK assets.

Financial support will be offered on commercial terms, the UK and Welsh governments said on Thursday. The announcement followed a second meeting between UK business secretary Sajid Javid and Tata group chairman Cyrus Mistry this week in Mumbai, where progress on the sale process was discussed.

“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," Javid said in a statement posted on the UK government’s website.

Tata Steel declined to comment on the UK government’s offer.

Tata Steel said at the end of March that it was exiting its UK business, which has been hit by rising costs, a slump in steel demand that has caused prices to drop and a surge in Chinese steel imports.

That put at risk 15,000 jobs, piling pressure on the government of David Cameron to step in.

This month, Greybull Capital agreed to pay a nominal £1 for Tata Steel’s entire long products business in the UK and take over its assets and liabilities, saving around 4,400 of those jobs. Senior executives at Tata Steel’s Port Talbot factory in Wales are considering a management buyout of the facility.

“The UK 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, offering financing on commercial terms to support the ongoing operations and deliver long-term investment in the future of the business," the government statement said.

The financial support package will be tailored to the buyer’s strategy and financing needs, the statement said.

“However, it is expected that all, or the large majority, will be through the provision of debt financing. Other options include: providing hybrid (convertible debt) or alternative forms of financing, supporting a purchaser’s financing by taking a minority equity stake (up to 25%) acting in support of the purchaser; however, government will not acquire a material element of control over the business."

The commitment from the UK comes at a time when Tata Steel is in touch with dozens of potential industrial and financial investors to dispose of its assets in that country which it acquired in 2007 through the $12.9 billion purchase of Corus Group Plc.

Britain’s largest union Unite welcomed the UK and Welsh governments’ offer of support to potential buyers and the pledge to buy a minority stake if needed.

“This is positive news for the Tata Steel workforce and starts to gives them, their families and communities the assurance that serious effort is being made to secure a new owner as the unions have demanded," said Unite assistant general secretary Tony Burke.

“We hope that today’s commitment will reassure Tata Steel’s customers and the hundreds of businesses in the supply chain and convince them to hold their nerve and keep their faith in a world class workforce," Burke said on Thursday.

The UK government also said it is actively working with Tata Steel and the British Steel Pension Scheme’s trustees to find a solution that will help minimize its impact on a potential purchaser, and potentially separate it from the business.

In addition to the support package, the UK and Welsh governments will also be willing to consider additional grants, for example, to support the development of power plant infrastructure, energy efficiency and/or environmental protection measures, research and development and training.

“It is kind of giving an assurance for a potential buyer. Now, there is a clarity on definitive liabilities for a buyer. It also shows that the government is willing to fix a certain amount of pension liability and it will assume over and above it," said a senior equity analyst closely tracking Tata Steel. He requested anonymity.

Analysts expect support from the UK government to help find a buyer for the assets of Tata Steel, which has the capacity to manufacture 7 million tonnes of steel in the country.

“An equity stake and support from the government may make it a preferred option for the new buyer and also make it easy for Tata Steel to find a buyer," said Goutam Chakraborty, an analyst at Emkay Global Financial Services.

A spokeswoman for Cameron said the government did not view the offer as part-nationalization as it would be investing on a commercial basis and wasn’t seeking control over the business. “We don’t think that nationalization is the right answer," she said.

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