How tough is finding a buyer for Tata Steel’s facilities in UK?
Tata Group is in talks with a couple of potential buyers, but experts say it won't be an easy affair
Mumbai: The Tata Group has decided to pursue its decision to sell steel assets in the UK and will launch a formal sale process by Monday.
After meeting Tata Group chairman Cyrus Mistry on Wednesday, Britain’s business secretary Sajid Javid said the UK government will do all it can to help secure a serious buyer as it attempts to save thousands of jobs.
The Guardian reported last week that Tata Steel’s Port Talbot plants and the wider UK business is losing significantly more than £1 million every day.
But how tough is finding a buyer for Tata Steel’s facilities in the UK?
Commodities tycoon Sanjeev Gupta, 44, a potential bidder for some of Tata Steel’s UK assets, on Thursday said he plans to start due diligence on the assets in a week, but is not willing to take on the debt associated with it.
Separately, Tata Steel is in discussions with Greybull Capital LLP for sale of its European long products business.
But the road ahead is not easy for Tata Group.
“Tata Steel’s facilities in UK are incurring large cash losses. Tata Steel has undertaken several restructuring of operations and invested in these facilities to make them competitive. We do not expect a new buyer to turn around UK operations, which Tata Steel has not been able to do despite relentless efforts," according to a 4 April report by research unit of IIFL Holdings Ltd, authored by analysts Bijal Shah and Urvil Bhatt.
“Accordingly, we see low probability of the sale of these facilities. The government might offer some benefits, which could increase attractiveness of these assets slightly," the report said.
To be sure, Tata Steel’s long products business in Europe has been on the block for a while. Tata Steel was earlier in talks with Klesch group to sell this business. However, the Klesch group opted not to go ahead with the deal, citing dumping of steel from China and high energy costs.
On 30 March, Tata Steel said it will consider various portfolio restructuring options for its UK business, including a sale in part or whole. Worker unions in the UK, however, have warned the group against a partial sale of its assets in the UK.
The combined capacity in the UK is close to 7 million tonnes (mt) of the total 13 mt of steel-making capacity the company holds across Europe.
Tata Steel had acquired Corus Group Plc (now Tata Steel Europe) for $12.9 billion nine years ago and it was termed as then Tata Group chairman Rata Tata’s most ambitious acquisition.
The European operations soon took a hit due to the financial crisis in 2008 and have been a financial drag on Tata Steel ever since. The company has taken impairments worth £2 billion on the asset in the last five years.
Matters came to a head due to the recent fall in global commodity prices, a slowdown in demand in the UK and the growing influx of cheaper imports into that country.
“The market is enthused by the possibility of the exit of Tata Steel from UK’s unprofitable assets. However finding a buyer is unlikely to be very easy. Mothballing could entail very high costs given strict labour laws," a Macquarie Capital Securities Ltd report authored by senior analysts Sumangal Nevatia and Rakesh Arora.
The Macquarie Capital report said the UK assets are unprofitable owing to high labour costs compared to Chinese steel plants, regulatory costs and energy costs.
The Macquarie report said the steel making in the UK under current environment is tough.
For instance, Thailand-owned Sahaviriya Steel Industries UK had acquired Teeside facility of Tata Steel three years back and had to be mothballed.
It also pointed out the delay in a potential deal with Greybull Capital.
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