Mumbai: The board of directors at Tata Steel Ltd has decided to seek strategic joint ventures with leading international steel makers for its European business after the sale of its UK assets hit a roadblock owing to uncertainty stemming from Britain’s decision to exit the European Union.
After a board meeting that lasted several hours on Friday, Tata Steel said it had decided to evaluate “alternative and more sustainable” solutions for the European business.
“Consequently, Tata Steel has now entered into discussions with strategic players in the steel industry including Thyssenkrupp AG,” the statement issued late on Friday night said.
“Discussions have been initiated to explore the feasibility of strategic collaborations through a possible joint venture. However, the talks are currently at a preliminary stage and there can be no certainty of a transaction as the outcome depends on consultation and negotiations with various stakeholders.”
The announcement came after the UK’s business secretary Sajid Javid met Tata Steel representatives on Friday in Mumbai to discuss the future of the company’s UK assets.
On 30 March, Tata Steel announced plans to sell its UK steel assets, including the Port Talbot steel-making facility in Wales, in a bid to cut losses that had been piling up because of a crash in steel prices and competition from cheap imports. The decision put 15,000 jobs at risk.
Subsequently, the company started seeking bidders for the UK assets it acquired through its 2007 purchase of Corus Group Plc. for $12.9 billion.
On 9 May, the company said it has shortlisted seven bidders, including JSW Steel Ltd and Liberty House, interested in buying all of its UK steel assets.
To be sure, the company will continue with the sale talks its UK steel assets amid discussions for a joint venture for the entire Europe business, including the UK assets. These assets have been making a daily loss of £1 million. For the March 2016 quarter, Tata Steel reported a quarterly loss of Rs3,213.76 crore as it took a write-down on the value of some of its European assets.
On 24 June, the UK decided to leave the European Union in a referendum vote. The decision, analysts said, will have far-reaching impact on Tata Steel’s UK operations. Europe contributes significantly to Tata Steel UK’s total steel sales and changes in trade policies between the UK and the European Union would impact Tata Steel UK’s operations.
“The bids received have been carefully considered in detail on the basis of their commercial value and prospects for the future sustainability of the UK business for a range of stakeholders. The bids have also been reviewed in the light of the uncertainties caused by the UK referendum and the outcome of the UK Government’s consultation on the British Steel Pension Scheme,” Tata Steel said in Friday’s statement.
Koushik Chatterjee, group executive director and Tata Steel’s executive director for Europe, said a potential strategic combination of its European “strip products businesses offers the best prospects to create a premium, world-class strip steel business with the scale and scope of capabilities to compete successfully on the global stage.”
Chatterjee added that success of the new round of talks would depend largely on discussions with employees over pensions and government policy initiatives in the UK.
“It is too early to give any assurances about the success of these talks. Such success, especially the inclusion of the UK business in the potential joint venture, would depend on several issues including finding a suitable outcome for the British Steel Pension Scheme, successful discussions with the UK trade unions and the delivery of policy initiatives and other support from the Governments of the UK and Wales. These are necessary for realizing a sustainable business in the UK,” Chatterjee said.
The company will also look to start a separate process to sell its specialty steel business.
“As part of this development in our European strategy, we will now also begin separate processes for the potential sale of the South Yorkshire-based Specialty Steels business and the Hartlepool pipe Mills in the UK,” Chatterjee said. “Both of these operations are largely independent of the strip products supply chain with their own specific characteristics. Tata Steel UK has already received interest from several bidders for specialty steels and the pipe mills in each case and a formal process will be commencing shortly,” Chatterjee added.