Tata Steel to begin sale process of UK assets by Monday

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Mumbai: The Tata group has decided to pursue its decision to sell steel assets in the UK and will launch a formal sale process for the same by Monday.

Britain’s business secretary Sajid Javid met Tata group chairman Cyrus Mistry on Wednesday in an effort to save thousands of jobs as the group gears up to sell its steel business in the UK, which has been hit by slowing demand and falling realizations.

Javid tweeted that he had a constructive and positive meeting. He said a formal sale process will begin by Monday and the UK government will do all it can to help secure a serious buyer.

“Met with Tata Steel in India today. I’m determined to do all I can to secure a long-term viable future for UK #steel & workers,” Javid wrote. However, Javid said that there is no set time frame for the sale. “Tata Steel will allow a reasonable period to find a buyer,” he wrote.

Tata Steel did not offer any comment.

The Guardian last week reported that Tata Steel’s Port Talbot and the wider UK business is losing significantly more than £1 million every day.

On 30 March, Tata Steel said it will consider various portfolio restructuring options for its UK business, including a sale in part or whole. Worker unions in the UK, however, have warned the group against a partial sale of its assets in the UK.

On 1 April, Reuters reported that Tata Steel and Germany’s Thyssenkrupp AG have been talking about combining their European steel operations, quoting people aware of these discussions.

On Wednesday, Tata Steel in a statement to BSE, clarified: “Tata Steel as a part of its business strategy regularly evaluates strategic opportunities across various segments of its operations in different geographies.”

The statement added that the company has been involved in discussions on strategic perspectives for particular business activities post its 30 March announcement to consider various restructuring options for its UK assets.

The combined capacity in the UK is close to 7 million tonnes (mt) of the total 13 mt of steel-making capacity the company holds across Europe. The situation has come to a head almost a decade after Tata Steel acquired Corus Group Plc. for $12.9 billion in 2007, in what was then Tata Group chairman Ratan Tata’s most ambitious acquisition.

However, the European operations soon took a hit due to the financial crisis in 2008 and have been a financial drag on Tata Steel ever since. The company has taken impairments worth £2 billion on the asset in the last five years.

Matters came to a head due to the recent fall in global commodity prices, a slowdown in demand in the UK and the growing influx of cheaper imports into that country.

Tata Steel’s decision to exit UK steel operations is a positive step, according to a 4 April report by research unit of India Infoline Ltd, authored by senior research analysts Bijal Shah and Urvil Bhatt.

“However, execution remains unclear. Depending on the path to exit, the development could be mildly to materially positive for shareholders. In the best case, UK operations could be nationalized or sold at zero enterprise value. On the other hand, Tata Steel may continue the operations with some support from the state. Operations outside UK are profitable, not needing funding from the parent,” the report said.

Discontinuation of UK operations would reduce vulnerability to the steel cycle and improve earnings visibility of European operations. The company is also in talks with the government to find the best alternative.

“Potential outcomes of this decision range from nationalization to complete shutdown, resulting in large job losses. We believe nationalization is the best outcome. On the other hand, if Tata Steel continues with the operations with some support from the state, the UK operations would continue to be a burden,” the India Infoline report said.

To be sure, Tata Steel’s long products business in Europe has been on block for a while. Tata Steel was earlier in talks with Klesch group to sell this business. However, the Klesch group opted not to go ahead with the deal, citing dumping of steel from China and high energy costs.

Currently, Tata Steel is in discussions with Greybull Capital Llp for sale of its European long products business. The original deadline of FY16-end has been extended by two months.

Last week a new buyer has emerged for Tata Steel’s UK assets. Steel tycoon Sanjeev Gupta, executive chairman of commodity trading group Liberty House Group, said he is waiting for the Tata group to initiate a formal sale process for its steel plants in Port Talbot, which employs about 4,000 people.

Currently, he has become the most high-profile candidate to potentially buy the business from Tata Steel Europe. Gupta met Javid on Tuesday.

On Wednesday, Tata Steel rose 5.24% to Rs.328.45 apiece on BSE, while India’s benchmark Sensex rose 0.07% to close at 24,900.63 points.