Exiting UK ops a logical way of de-risking biz: Tata Steel

Having decided to put the entire UK operations on the block, Tata Steel Tuesday said it was "a logical way of de-risking its businesses" after the book-value turned fully negative in the last one year after being "hit by an avalanche of adversities".

PTI| Updated: Mar 30, 2016, 21:42 PM IST
Exiting UK ops a logical way of de-risking biz: Tata Steel

Mumbai: Having decided to put the entire UK operations on the block, Tata Steel Tuesday said it was "a logical way of de-risking its businesses" after the book-value turned fully negative in the last one year after being "hit by an avalanche of adversities".

Nine years after acquiring Corus for over USD 14 billion and to become Europe's second-largest steel maker, Tata Steel has finally decided to exit the UK operations as it battles to control "deteriorating financial performance".

 

"Selling British operations in part or full is the logical way of de-risking our business as a whole and Tata Steel Europe in particular. The book value of British operations have tuned nearly zero in the past four quarters," Tata Steel Group Executive Director for finance and corporate, Koushik Chatterjee told reporters here.

Last year, the company had written off 2 billion pounds in impairment costs and that was almost the entire impairment cost. "If there is any remnant of it we will fully take care of that."

"There is a perfect storm in materials industry and our British operations have been hit by an avalanche of adversities," he added.

 

Tata Steel employs about 15,000 people in Britain at sites including the giant Port Talbot plant in Wales, which alone employs about 4,000 and Scunthorpe.

On what is the timeline for a decision and whether they are confident of getting a buyer given market conditions, he said: "We only took this decision yesterday and we are awaiting the response from the board of Tata Steel Europe. We want a resolution at the earliest."

He further said "the company has three firm proposals from financial investors for the long product business in Britain. So we are not ruling out anything. The last two years, the British operations have been really in trouble."

 

When asked if a sale does not materialise and what is the plan B and the way forward, he said: "We'll cross that bridge when we come to it."

On whether the company is in touch with British government Chatterjee said, "We have been having very constructive discussions with British authorities and we hope to continue the same. We will not be shying away from any options."

Tata Steel took the decision after a marathon board meeting held yesterday which went late into the night.

Justifying the "painful decision" to exit British operations Chatterjee said, "what you have to understand is there is a difference between what has happened to Tata Steel UK and what has happened inside the company. It is what has happened to the company that has driven us to this decision."

To a question whether it was justified that Tata Group patriarch Ratan Tata, who paid USD 14.2 billion in April 2007 to buy out Corus, Chatterjee said: "That isn't a fair query. At that time we decided to go by the market conditions, which was robust. But now a time has come, where there is no way forward except this move."

The acquisition of Corus and the soon to be followed buyout of the marquee British auto brand JLR, made the Tatas the largest employer in British manufacturing industry. Since the turnaround of the loss-making JLR by late 2000s, it has been the British unit that has been bailing out the parent.

But the decision to exit 6.5 million tonnes plants put the jobs of almost 15,000 employees in the sluggish British economy. Tata Steel Group employs 76,500 people globally, out of which over 20,000 are by the parent unit in the country.

Chatterjee said the parent Tata Steel has invested 1 billion pounds in capex and has another 1 billion pounds in working capital loan. Of the total Rs 75,000 crore long-term loans, more than one-third of it is on the books of Tata Steel Europe.

When asked whether the firm is open to sell the Netherlands business as well, Chatterjee parried a direct answer saying except for minor hiccups in the form demand slump, the European business is not loss making and therefore the priority is to control the mounting losses from the British side.

While the market lapped the news, pushing up Tata Steel counter by 6.75 per cent to Rs 324.40 on BSE, international rating agency Standard & Poor's in a note said the plan to restructure or exit British operations as "credit positive."

Analysts attributed the development to the loan that Tata Steel took to acquire Corus as well as the "tough" environment faced by steel firms in Europe.