July 15, 2020 / 2:05 PM / 22 days ago

UK's Sunak unconvinced over equity stakes in struggling firms

FILE PHOTO: Britain's Chancellor of the Exchequer Rishi Sunak reacts as he leaves Downing Street, in London, Britain July 8, 2020. REUTERS/Hannah Mckay/File Photo

LONDON (Reuters) - British finance minister Rishi Sunak said on Wednesday he was not convinced it would be necessary or practical for the government to take equity stakes in businesses that have borrowed under government coronavirus schemes.

Bank of England Governor Andrew Bailey and other experts have warned that many firms may struggle to repay coronavirus loans, and that a solution could be for the government to write off the debt and take a stake in the businesses instead.

Sunak told lawmakers this would not work on a large scale.

“I’m not completely persuaded of the scale of the problem at the moment. The simple reason is that we know corporate debt levels in the UK were in a relatively healthy place coming into this crisis,” he told parliament’s Treasury Committee.

Businesses have borrowed more than 45 billion pounds ($57 billion) under various government programmes, with lenders receiving a 100% government guarantee for loans to more than a million of the smallest companies.

Small businesses borrowing up to 50,000 pounds did not go through banks’ normal credit checks, but if they cannot repay the loans, they risk being forced into insolvency.

Sunak said that for this category of firm, debt for equity swaps were not an option. “I’m not entirely sure it would be sensible for the government to have individual equity stakes, necessarily, in millions of very small businesses,” Sunak said.

Reporting by Andy Bruce and William Schomberg; Writing by David Milliken; Editing by Alistair Smout and Andrew Cawthorne

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