Bulls Eye: Tatas talk to Greybull for UK unit sale

TATA Steel the largest steel producer in the country informed the stock exchange on December 22 that TATA Steel Europe's (TSE) indirect subsidiary TATA Steel UK (TSUK) has started discussions with investment firm Greybull Capital for the sale of its long product Europe business. Both the parties have signed a letter of intent to enter into exclusive negotiation. Tata Steel is Europe's second largest steel producer, with steel-making in the UK and Netherlands and manufacturing plants across Europe. The company supplies high-quality steel products to the most demanding markets, including construction, automotive, packaging, rail, lifting and excavating, energy and aerospace.

Steel industry in the UK is struggling for survival in the face of extremely challenging market conditions. In the past two years, import of steel plate to Europe has been doubled and imports from China have quadrupled, causing steel prices to fall steeply. The industry has a crucial role to play in rebalancing the UK economy but they also need a fairer system to encourage growth. The European commission needs to do much more to deal with unfairly traded imports from China – inaction from commission threatens the future of the entire European steel industry. In October this year, TSE announced a proposal to stop production of steel plates because of a significant  shift in market condition caused by flood of Chinese cheap imports, a strong Pound and high electricity gas. The decision could slash around 1200 jobs.

TSE has been a hugely supportive investor in the UK steel market, having invested almost EUR 1.5 billion in its operations. The discussion with Greybull concerning the sale will be for UK-based assets including TSUK’s Scunthorpe steelworks, mills in Teesside and northern France, an engineering workshop in Workington, a design consultancy in York, and associated distribution facilities. It also includes Scottish mills in Dalzell and Clydebridge which are currently being mothballed. About 4,700 people are employed at Long Products Europe and its distribution facilities. Tata Steel Europe employs about 30,000 people across Europe, including about 17,000 in the UK.

On the financial front TATA Steel's operating revenue decreased by 6.12 per cent to Rs 1,39,504 crores in FY15 as compared to Rs 1,48,613 crores in FY14. The company faced a loss of Rs 3925 crores in FY15. For FY15 the company has had a debt of Rs.69303 crores, an increase of 1.33 percent from last year. The total production capacity of TATA Steel is more than 28 million tonnes and 52 per cent of its revenue comes from Europe for the  year end FY15. The slowdown in the European market will affect TATA Steel's financial performance. The share price of the company is trading at Rs. 263.70 showing an increase of 2.53 per cent from the previous close.