Tata Steel-Thyssenkrupp deal structural solution for Europe: Koushik Chatterjee
Mumbai: A decade after Tata Steel Ltd bought Anglo-Dutch steel maker Corus—a company four times its size—the Tata group firm, in partnership with Thyssenkrupp AG, is crafting a new strategy to tackle the headwinds facing the steel industry in a region that is characterized by overcapacity, plant shutdowns and job losses. In an interview, Koushik Chatterjee, group executive director at Tata Steel, touches upon the criticality of the deal with the German industrial group for Tata Steel’s European business. Edited excerpts:
How important is this deal for Tata Steel, considering it has been worked out after several rounds of discussions? What have been the key learnings?
This is a win-win deal because it is not being done at the cost of any one part. If you look at it, it’s a more structural solution for Europe which also helps Tata Steel India.
When we started off, we were not ready to do that because we had other businesses which had conflicting priorities and different positioning. So we also went through a lot of transformation in our portfolio; an operational transformation programme in the UK; combining the synergies between the Netherlands and the UK. There were multiple things that were happening—portfolio realignment, pension restructuring. We needed to steer and navigate in a manner such that finally it comes to a closure. After this, it became a lot cleaner and a robust platform to integrate. I think it is the reflection of the long-term visions of the two groups who are not doing the transaction for transaction’s sake but are really focused on creating a sustainable enterprise for the future and that I think is an important philosophy.
How does your debt look in light of this deal?
There will be some restructuring of debt... On a current basis, our target will always be 1:1. We will have to factor in some of the growth that we are planning to pursue. So, without that growth, I don’t see any material change in the stand-alone balance sheet.
Our net debt (of the new entity) is around Rs17,000-18,000 crore. Part of the debt which is relevant to the working capital will get realized or liquidated and then there will be restructuring of the debt as part of the overall capital structure in a manner such that we will also have earnings from this joint venture and that is an important principle that we have both agreed... that we will have dividends. This would allow us to service the restructured debt which will not be impacted by India... India will be concentrated on its own balance sheet debt as well as its own cash flows.
What is the debt to be serviced by dividends?
It is something that we will do from now till closing (of the deal) because some part of it is working capital which keeps changing. And that you cannot freeze today. Definitely by the time we reach an agreement we will have a range.
Tata Steel’s Central Works Council in the Netherlands said it will pursue legal avenues if Tata Steel doesn’t engage in talks. Is that a worry?
It is important that we should not play on anxiety of any stakeholder. It is very clear that the reason and the rationale for the joint venture is not rationalization and job cuts. It is on the industrial and strategic logic of pursuing consolidation in the market and driving value through cost and technology leadership. It is continuous communication and engagement. A lot of people say a lot of things but not necessarily give the right inputs. It is about taking everybody along and our purpose is to ensure we create a successful joint venture which has got a combined approach towards industrial strategy that we want to pursue.
It’s a very unique structure the two companies have created. How will you tackle the cultural differences?
I think it is in the minds of people. It is performance culture that we need to focus on and respect the local culture of each community and location and ensure that we are all commonly aligned in terms of driving value and performance. And if we do that, then it is good for all local sites.
In the next five years you plan to double Indian steel capacity. How will it come through—organic or inorganic route?
I think a mix of both. We have a significant element which can be added from Jamshedpur and Kalinganagar. There is inorganic part where you have to demonstrate your aggressive participation and then see how it creates value.
In a mature market like Europe, how do you see the future of steel?
It is about the game in the industry which has overcapacity globally. It is about balance between volume growth and value growth. What you produce out of your assets becomes very important. If you are in a volume growth environment like India, you also will have to have an eye on what valuable products you can make. In the case of Europe, the volume part is non-existent because it is a mature market. So the play is actually in the value sector. So technology, investing in innovation, quality and looking at next-generation products is the key.
How will the two businesses complement each other?
By virtue of being in the same geography, you obviously get into a lot of complementary stuff because you address the same market, same customer profile and, thus, you have the ability to look at being more efficient without having duplication. If you are very close to each other, then that becomes a natural advantage to eliminate inefficiencies.