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Tata Steel UK Not Willing To Split Assets

Friday, Apr 29, 2016

Tata Steel has sought more help from the British government to find a buyer for its steel plants in the UK. Bimlendra Jha, chief executive officer of Tata Steel UK told a committee of British lawmakers there were "structural disadvantages" in the steel industry in the UK which made production unprofitable and added Tata Steel was not prepared to split up its main British assets, such as its Port Talbot steel plant, as part of a plan to divest its UK steelmaking operations.

Jha said, Tata Steel UK had not released dividend in the past nine years despite spending £1.5 billion as capital expenditure, which included putting up a new blast furnace. Tata Steel UK's operations remained unprofitable, which resulted in Tata Steel writing off £2 bn from its books. Structural disadvantages for operations in the UK included high labour and energy costs.

The Tata group had bought Anglo Dutch steelmaker Corus in 2007 for $12.9 bn, which was later renamed Tata Steel Europe. Tata Steel UK is a unit of Tata Steel Europe. Potential buyers are particularly sceptical about the company's pension fund liabilities. "We need to be aware that if this pension fund liability is not taken care of, there is no buyer sitting out there to buy this business," Jha told UK's government business committee. The pension burden is estimated to be about £2.5 bn.

Jha didn't commit to any deadline for the selling of the business that Tata group announced early this month. "There is no dead-drop time, but given the losses, urgency is important as we cannot continue to bleed money," Jha added.

Tata Steel went into trouble as the global steel industry suffered with oversupply, leading to low prices. World steel production doubled between 2000 and 2015, with China accounting for half of it. The sell-off has put up to 15,000 jobs at risk in Tata Steel UK's operations.

The consolidated debt of Tata Steel was Rs 71,798 crore on September 30, 2015. The total long-term debt of its Europe business was about £3 bn.

Greybull Capital agreed to pay a nominal £1 for Tata Steel's entire long-products business in the UK and take over its assets and liabilities, saving around 4,400 jobs. The British government is also willing to purchase a 25 per cent in Tata Steel UK's remaining business. Two potential buyers have been publicly identified so far, which includes a management buyout led by Tata Steel UK veteran Stuart Wilkie and a plan from commodity tycoon Sanjeev Gupta's Liberty House.

Both suitors have indicated that they will need the UK government's support to conclude a deal.

British Business Secretary Sajid Javid on Thursday said the government was not prepared to take more than a 25 per cent stake in Tata Steel's UK assets and he wanted to see them sold as soon as possible. "Twenty five percent was the limit that I thought was necessary to show that on the one hand you're serious about helping… but also not to put off potential investors by saying this is something the government seeks to control," he told the lawmakers.

 

Source : business-standard.com

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