Mumbai: European investment banker NM Rothschild and Sons Ltd, on its own, appears to be actively scouting for potential buyers for four divisions of British steel maker Corus Group Ltd, owned by Tata Steel Ltd.
Tata Steel, India’s largest private steel firm and fifth in the world by capacity, says it has not asked any bank to try and find buyers for any assets of that business.
It is not unusual for investment bankers to try and find interested parties and then try and stitch together a deal.
According to presentations made by the banker to at least two Indian steel firms, JSW Steel Ltd and Essar Steel Ltd, in August, Rothschild sought interest for Corus Engineering Steels, which makes critical components for the aerospace, automotive, energy and specialist mechanical engineering industries.
It has also pitched Corus Rail, which makes a wide range of rail products, as well as Cogent Power, which makes electrical steels, and also told potential buyers that the UK steel maker could possibly sell its energy tubes business as the assets were not attractive and because Tata Steel does not make similar products with larger diameter for pipeline companies in India.
Rothschild had earlier advised Tata Steel on its acquisition of Corus, now Tata Steel UK, in 2006 and early 2007.
Relevant portions of Rothschild’s presentation made to the two Indian steel companies were reviewed by Mint.
Rothschild executives declined comment for the story.
“We have neither discussed nor mandated any investment bankers on any sale of assets for any part of the business. Any rumour on the above issue is untrue and speculative,” said Sanjay Choudhry, a spokesman for Tata Steel, in response to an email questionnaire.
As per industry practice, there are two types of mandates investment bankers apply to buy or sell companies for their clients: Bankers either make their pitches on a specific brief by a company to find buyers or sellers in return for a fee, or, like Rothschild in this case, they first make a pitch without a mandate and, if they find a potential buyer or seller, approach the client company.
Senior executives of JSW Steel and Essar Steel confirmed they received enquiries from bankers regarding their interest in the four Corus divisions. Both the executives were unwilling to be named.
“We have received enquiries from the bankers, but (it) is premature to respond,” said a senior executive with Essar Steel, asking not to be named as he competes with Tata Steel in India.
A JSW Steel official said, “We are not interested in any of the four divisions as we have to complete our projects in India. We are keen to stabilize what we have on our plate before buying companies abroad.”
Rothschild, which won the best deal of 2007 award from FinanceAsia.com, a financial publishing company in Hong Kong, for advising Tata Steel on buying Corus, said in its presentation that Corus Engineering and Cogent Power have a history of underperformance. Tata Steel does not have a strategic interest in the two divisions as it does not make such products in India, it said.
Corus Engineering, which has annual revenues of about £500 million, is still underperfoming despite investments made by Corus. The parent company committed at least £100 million to it recently.
Corus, before it was purchased by Tata Steel, had negotiated with ThyssenKrupp Electrical Steel, or TKS, to sell Cogent Power. The technology at Cogent is not world-class, according to Rothschild.
There is a possibility that Tata Steel may retain its 50% interest in Corus Cogifer and Grant Rail, and sell Corus Rail, which has plants in Workington, the UK, and Hayange in France, Rothschild told the prospective buyers, adding that ArcelorMittal would be willing to repurchase the French facility. The Hayange facility had been bought by Arcelor seven years ago, before Mittal took over the company.
“Bankers see a possibility of Tata Steel selling some of its Corus assets,” said another investment banker who had advised many acquisitions for Indian steel firms. “But I don’t think Tata Steel has made any formal approach to anyone. We don’t know which business will be put on the block.”
“This may not be a right time to sell steel assets,” said an executive director with another steel company. “Shares of steel companies have fallen by an average 30% in the global stock market.”
Tata Steel’s Choudhry, responding to whether a possible sale of the divisions was related to raising funds for repaying bridge loans taken to buy Corus, said the company had no bridge loans outstanding related to the acquisition. The syndication of the debt on the Corus acquisition was completed in 2007, he said.