THE GOVERNMENT has rejected a request from luxury goods group Waterford Wedgwood for State guarantees over loans worth up to €39 million, fearing demands for similar support from other struggling firms.
Concerned by the political implications of the decision, the Cabinet last night insisted it was prepared to support the loss-making company in any other way that it could.
While Waterford Wedgwood is said to be examining a number of options for its crystal business, the survival into the medium term of its manufacturing plant in Ireland is now believed to be in doubt. The company's factory at Kilbarry, Co Waterford, is already engaged in a redundancy programme which will eliminate 490 jobs this year, leaving about 550 workers. The company, which had some 3,200 staff in Waterford in the late 1980s, told staff last week that the plant will close for up to three weeks over the next two months in an effort to save money.
Unable to raise additional money from its banks due to the covenants on its existing loans, the company made it clear to the Government in recent weeks that the provision of a guarantee over new loans was a "vital element" in the retention of its crystal-manufacturing operation in Ireland.
"The decision is noted. We are disappointed. We have nothing to add at this time," said a spokesman for Waterford Wedgwood last night.
The trade union UNITE said last night it had "fully supported management proposals to secure Government financial support for the company.
"We have yet to be formally advised of today's cabinet decision and it would be premature to comment in full until we have seen the full response to the company proposals," Unite Regional Officer Walter Cullen said yesterday.
Certain Ministers are known to have expressed the fear that helping Waterford would result in the Government being dragged into a future closure of the factory.
However, the company itself claimed that any Government assistance would be akin to the public bailouts of Northern Rock in Britain, Bear Stearns in the US and the rescue in the 1980s of Insurance Corporation of Ireland.
John Foley, chief of the Waterford Crystal unit, said last year that the group employs 1,300 staff in Indonesia for the same wage cost as 90 staff in Britain, itself a cheaper labour market than Ireland.
Waterford chairman and dominant shareholder Sir Anthony O'Reilly has with his brother-in-law Peter Goulandris, propped up the company to the tune of €300 million in recent years. They own slightly more than 50 per cent of its ordinary shares and 58.8 per cent of its preference shares.
The Government engaged consultants from accounting firm KPMG when it was first approached by Waterford shortly before Christmas.
The consultants presented a number of options to Ministers when they met at a Cabinet meeting yesterday morning.
While the Government was silent on the issue last night, it is understood that the European Commission did not veto the company's request for State aid when it discussed the issue in informal talks with the Department of Enterprise, Trade and Employment. The commission is understood to have said that it did not believe that a formal application for assistance would fail.
A Government spokesman said last night that the Cabinet had been anxious to investigate Waterford's application thoroughly.
Stating that the Government believed that the company had a future, he said the State would consider any request to Enterprise Ireland for support for training, research or other such activities.
With Waterford already under sustained pressure because of the dollar's weakness, the business suffered during the important Christmas period from a shortage of its own products. Saddled with debts exceeding €470 million, the company is likely next month to report a loss before tax of about €100 million for the year to March. It has a current market capitalisation of €53.54 million. Since 2003 it has raised €775 million through share placings, a bond issue and asset disposals.