Tata Steel(TISC.NS) is in talks with employees about transferring its "long products" unit into a wholly-owned subsidiary, but said talks to sell the business to Swiss-based Klesch Group continue.
The steelmaker said in October last year it was in talks to sell the unit, which employs 6,500 people mostly in Britain, to Klesch Group, a global commodities business involved in chemicals, metals and oil production and trading.
Long products are mainly used in construction and energy.
British trade union Community welcomed the talks, even as it is due to declare on Friday the results of an industrial action ballots over Tata Steel's proposal make changes to its employees' final-salary pension scheme.
"We are pleased that Tata Steel has taken forward one of the key recommendations of the Syndex report into alternatives to the sale to the Klesch Group," said Roy Rickhuss, general secretary of Community.
The Syndex report, commissioned by trade unions to look into alternatives to a sale, recommended the creation of a standalone business as this could enable access to statutory funding or new investment not currently available.
A Tata Steel spokesman confirmed the talks, but said: "In order to maximise the prospects of securing a viable future for Long Products Europe, Tata Steel is continuing its discussions with the Klesch Group about a potential sale of the business."
Klesch has a record of swooping in on ailing businesses and is credited with bringing distressed debt investing -- or "vulture capitalism", as it is described by critics -- across the Atlantic.
Tata Steel has been forced to slash costs and jobs since 2007 when it bought Anglo-Dutch producer Corus for $13 billion.