– India’s Tata Steel is in talks to sell its 7.5 million-ton-per-annum plant in the Netherlands to Sweden’s SSAB, cutting back on its European operations even as it expects the U.K. government to dole out long-term support for its loss-making facility at Port Talbot in Wales.
The due diligence for the sale is expected to be completed in a couple of months and the proceeds of the sale would be used to pare off 1.7 billion euros ($2.0 billion) in debt accumulated in the books of Tata Steel Europe, the company’s management said in a teleconference call with reporters on Tuesday.
“In two months’ time, we will complete the due diligence and be able to get into a stage where we will be looking at the whole binding, structure of the offer, the valuations and everything else,” said Tata Steel Executive Director and Chief Financial Officer Koushik Chatterjee.
“By itself, [the Netherlands unit] does not have any material debt…. Tata Steel Europe has 1.7 billion euros of consolidated long-term debt. Depending on how the deal works out, a part of which will be pared. Specifics, we will have a better idea when we are at [the] binding stage,” he said.
The Indian company bought the steelmaking facility of IJmuiden Steelworks in 2006 as part of its acquisition of Anglo-Dutch steelmaker Corus Group.
This steel plant in Ijmuiden, Netherlands, is a part of loss-making Tata Steel Europe. © Reuters
The European arm, however, has been struggling to run the business amid falling demand for steel. In 2017, Tata Steel and Germany’s ThyssenKrupp agreed to merge their European steel assets to enhance synergies but the deal was blocked on antitrust grounds.
In November, Tata Steel announced it would cut 3,000 jobs in Europe, more than 10% of the regional workforce to reduce costs. It employs 21,000 people at Tata Steel Europe, which owns mills in several nations including the U.K., Germany and the Netherlands.
Tata Steel is also seeking support from the British government to keep its U.K. operations afloat. “The U.K. unit is not bleeding as it was… [we are] in discussions to see what support we can get from the government,” Chatterjee said.
“Post Brexit, we see that U.K. government will be keen to revive economic activity,” he said. “The U.K. has some high-end manufacturing locally and steel is an important part of the value chain.” The U.K. has left the European Union and the transition period of Brexit ends this year.
Late on Friday, Tata Steel surprised the market by reporting a net profit of 15.6 billion rupees ($209 million) for the quarter ended September, bouncing back from a loss of 44.1 billion rupees in the previous quarter, supported by demand recovery in India. Revenue for the September quarter rose 7.4% to 371.5 billion rupees from a year ago.
“Tata Steel has delivered strong results in India with broad-based, market-leading volume growth and strong cash flow generation,” said T.V. Narendran, Tata Steel CEO and managing director. “The resilience of our business model and the commitment of our teams [have] enabled us to ramp up capacity utilization to normal levels and achieve [the] highest ever sales despite the ongoing challenges due to the COVID pandemic.”
Tata Steel Europe, however, continued to weigh on the group’s performance. The company posted a loss in earnings before interest, taxes, depreciation and amortization of nearly 11 billion rupees in the first half of this fiscal year, already surpassing the annual loss in EBITDA of 6.6 billion rupees in the last fiscal year through March.
He said that although the European business climate remains challenging, the company has seen an improvement in volumes and sales mix. “We will continue to drive performance and work on a strategic resolution to ensure the focus remains on cash flows and self-sufficiency,” Narendran said.
Some experts raised concerns over the fact that Tata Steel was still trying to keep its U.K. business. A local brokerage Emkay Global said a slump in steel prices and the continuation of the European business are key risks for the company.