Tata Steel halts UK asset sale process on Brexit concern4 min read . Updated: 08 Jul 2016, 11:00 PM IST
Tata Steel, whose board will meet on Friday, may postpone the sale until clarity emerges in the UK political landscape shaken by the Brexit vote
Mumbai: Tata Steel Ltd has put the sale of its UK assets temporarily on hold in the fallout of Britain’s vote to exit the European Union (EU), two people familiar with the development said on Thursday.
Tata Steel, whose board will meet on Friday, is postponing the sale until clarity emerges in the UK political landscape after the 23 June Brexit vote, said one of the two persons on condition of anonymity.
The company wants to ensure that UK authorities are still committed to offering incentives to potential buyers of the assets. Friday’s board meeting will discuss the road ahead for the sale post Brexit, said the second person, also requesting anonymity.
In March, Tata Steel decided to put its entire UK business on sale in the face of a slump in steel demand and prices, some nine years after it bought Corus Group Plc. for $12.9 billion in the biggest acquisition by an Indian company.
On 9 May, the company said it had shortlisted seven bidders, including India’s JSW Steel Ltd and Liberty House, interested in buying all of its UK steel assets. The company hasn’t made a follow-up announcement since.
An email sent to Tata Steel on Thursday remained unanswered. An emailed query to JSW Steel also elicited no reply. A spokesperson for Liberty House declined to comment.
Britain’s steel industry has been hit by high energy costs, inefficient output and a flood of cheap Chinese exports, prompting Tata Steel to decide on a sale of the assets, which puts 15,000 jobs at risk.
Brexit introduced new uncertainties into the sale process. Many of the shortlisted bidders pulled out due to uncertainty in the wake of the Brexit vote, Bloomberg reported on Thursday, citing people with knowledge of the matter.
Potential buyers told Tata Steel that the UK’s surprise vote to leave the European Union raised uncertainties about the viability of its operations in the country, Bloomberg reported. At least four shortlisted bidders pulled out of the process, according to one of the persons cited by Bloomberg.
UK business secretary Sajid Javid is expected to meet Tata Steel representatives on Friday to discuss issues related to the sale process.
The sale of the UK assets is critical for Tata Steel, which reported a loss of ₹ 3,213.76 crore in the three months ended March as it wrote down the value of some of its European assets. A quick decision on these assets is crucial for the company, which has been losing £1 million a day on its UK assets.
On Thursday, BBC News reported that Tata Steel is expected to announce on Friday that it will pause the sale of most of its UK business, including the Port Talbot facility in Wales. However, it will proceed with the sale of its speciality steel-making business, said the report.
According to the BBC News report, “after an initial sense of urgency to offload the loss-making business, Tata has recently adopted a more relaxed approach to determining its future, as government incentives to keep the business going have come in thick and fast".
Europe contributes significantly to Tata Steel UK’s total steel sales and changes in trade policies between the UK and the EU could have an impact on its future operations.
Meanwhile, Tata Steel Ltd UK employees’ union said it had written to the company seeking clarity over news reports that the sale of its UK assets had stalled.
In a statement, Unite said it will be “pressing Tata for clarity over its intentions and ensuring it sticks to its promise to be a responsible seller and act ethically. We would urge Sajid Javid to do the same when he meets with the Tata board in Mumbai".
Unite warned Tata Steel “against ducking its promises and conducting a ‘fire sale’ of its speciality steel business while allowing Port Talbot and its UK strips business to ‘wither on the vine’".
The union said it would be seeking further details and assurances from Tata Steel and prospective buyers over the sale of the speciality steel and tube business.
“With Brexit, there is significant uncertainty in the UK. Potential buyers will need to rethink and those who still want to take bets, will want to take smaller bets," said Harish H.V., a partner at Grant Thornton.
“There is uncertainty and valuations will be lower and hence the seller will not want to sell at a lower price for reasons which are external," he added.
On what if the wait is longer, given the fact that Tata Steel is making daily losses on these assets, “it is important for UK to clear the air as early as possible", he added.
On Thursday, Tata Steel shares closed at ₹ 317.65 on the BSE, 4.92% lower from their previous close on a day the benchmark Sensex closed 0.13% higher at 27,201.49 points.
Bloomberg contributed to this story.