Is the Tata Steel sale process on track?

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Mumbai: Two developments on Thursday will decide the course of Tata Steel Ltd’s sale of its UK assets. One, Britain’s vote on its membership of the European Union (EU) and, two, the outcome of consultations for changes in the British Steel Pension Scheme (BSPS).

Clarity on whether the UK stays in the EU is significant for a potential buyer. According to a 15 June Telegraph news report, in a letter urging the staff to give “careful thought” to the referendum, Tim Morris, head of public affairs for Tata Steel in Europe, said, “The choice you make on 23 June will make a difference to your working life.” He added that access to the EU market is “fundamental to our business”.

The UK government has also called for a public consultation for changes to be made to the pension scheme and Thursday is the last day to submit the views.

If the consultations back changes in the pension scheme, it could help reduce the pension burden for either Tata Steel or the new buyer. Even if the members are in favour of the changes, Tata Steel may face more challenges over criticism for such an exception being made for one specific company.

According to Tata Steel Europe website, BSPS has a total of 133,000 members, made up of about 15,000 active members (working for Tata Steel), 33,000 deferred members (former employees not yet at retirement age) and 85,000 pensioners. As of 31 March 2015, the scheme’s assets were valued at £13.99 billion and the value placed on the liabilities was £14.48 billion, according to the website.

“Decisions on Brexit and on the pension scheme are important for a new buyer to assess the UK assets. Tata Steel may want to wait for clarity on these before it proceeds with the sale process. Concerns may resurface if the company decides to hold on to the assets,” said Goutam Chakraborty, an analyst at Emkay Global Financial Services.

An email query sent to Tata Steel on the timeline for the deal completion on Tuesday remained unanswered.

Tata Steel on 30 March decided to exit from its UK steel assets to pare losses. On 11 April, the company started its process to fully exit from these assets. In its last press statement on the proposed sale made on 9 May, the company said it has shortlisted seven bidders with interest in buying out all of its UK steel assets.

Not much has been heard officially from the steel maker since its 9 May announcement.

Koushik Chatterjee, group executive director (finance and corporate) for Tata Steel, in a 3 April email to Mint, said the sale is “not a valuation exercise. There is severe cash burn in our UK operations; hence, it is imperative to close the review on priority”.

However, the sale exercise has now extended beyond a month from the time the company shortlisted its bidders on 9 May.

For the March 2016 quarter, Tata Steel reported a quarterly loss of Rs.3,213.76 crore as it took a write-down on the value of some of its European assets. A quick decision on these assets is crucial for the company as it has been losing £1 million a day on its UK assets.

A Financial Times (FT) report on Monday said, “Despite its initial haste to offload a business that at one point was losing £1m a day, Tata has pushed back a final decision on the future of the operations to next month and delayed announcing a shortlist of bidders.”

“That apparent change of heart came after intervention by the government to persuade Tata—which has written down the value of its UK steel operation to ‘almost zero’—to keep the plants open,” the FT report added. It also said Tata Steel may be open to selling the assets in parts, a proposal the company so far has said it is averse to.

Also Read: Tata Motors, Tata Steel among firms that may take Brexit hit: analysts

Brexit and the consultation on BSPS may be the reasons for delay, in addition to these developments, analysts say.

Meanwhile, the steel workers’ union Community has accused Tata Steel of keeping its members in the dark about the sale of UK assets.

“Community, the steelworkers’ union, has serious concerns about the integrity of Tata Steel’s sales process. Almost three months have passed since the announcement that Tata intended to sell their UK assets, yet if anything steelworkers and their families are now less certain of their future than ever. Employees, customers and suppliers all deserve to know Tata’s intentions. Without all of those groups the steel industry cannot hope to have a successful future,” the union said in a statement.

“Tata made it clear they no longer wanted to keep their UK businesses. The UK Government stressed the need for Tata to act as a responsible seller; however it is now unclear whether Tata intends to sell the business at all,” it said.

The union said since that first announcement, the trust and goodwill of Tata’s loyal workforce has been pushed to the limit.

If Tata wants to retain the business, then it needs to make this clear to its loyal workforce and lay out its long-term plan for investment in steelmaking, the workers said.

“Were Tata to remain, they would have a long way to go in regaining the confidence of steelworkers. Amidst this uncertainly, there also remains the hugely important issue of the pension scheme to be resolved,” the union noted.

It pointed out that the British steel industry is bigger than any one company or government, and as the guardians of the industry, the workers called on Tata to recognize its moral and social responsibilities.

“Community will continue our Save Our Steel campaign; meanwhile Tata and the UK government must get their act together to end this insufferable period of uncertainty and ensure a future for UK steelmaking,” the union added.