Tata Steel shares rise on Europe joint venture bid
Tata Steel shares rose as investors reacted positively to its announcement that it would seek a joint venture (JV) partner for European business
Mumbai: Shares of Tata Steel Ltd rose on Monday as investors reacted positively to the company’s weekend announcement that it would seek a joint venture (JV) partner for its entire European business, putting the sale of its UK assets on the back-burner.
Shares of Tata Steel rose 2.72% to ₹ 327.25 apiece on BSE, while the benchmark Sensex gained 1.84% to 27,626.69 points.
On Friday night, Tata Steel said it was looking at alternatives to the sale of its UK assets, plans for which ran into a roadblock due to Britain’s referendum vote to exit the European Union.
On 30 March, Tata Steel said it will sell all its UK assets, which it acquired when it bought Corus Group Plc. in 2007 for $12.9 billion.
On 9 May, the company said it had shortlisted seven bidders.
The 23 June Brexit vote created uncertainty over future trade arrangement between the UK and Europe, which is a significant market for Tata Steel UK, forcing it explore a joint venture.
After a board meeting on Friday, Tata Steel said it had decided to evaluate “alternative and more sustainable” solutions for the European business. “Consequently, Tata Steel has now entered into discussions with strategic players in the steel industry including Thyssenkrupp AG,” the statement issued late on Friday night said.
Talks are at a preliminary stage, it said.
Credit Suisse expects an upside on the stock if deal talks fructify.
“While talks still at preliminary stage, this could create an upside for the stock,” Credit Suisse said in a note on Monday. The brokerage added that joint venture synergies with Thyssenkrupp could be to the tune of $550 million.
“Believe slow progress on UK sale is more or less priced in,” Credit Suisse said in its note. The brokerage maintained an outperform rating on the stock.
Religare Capital also sees the development as a positive for the company.
“The JV indeed may have the synergy benefits,” said Pritesh Jani, analyst, Religare Capital Markets Ltd, in an email note on Monday.
“The joint venture success just like the sale success will depend on the outcome on British Steel Pension Scheme (BSPS), discussions with UK trade unions, support from UK government,” Jani wrote in the note, adding that it will be a long-drawn process.
“The interesting thing (is) will the UK govt. under current circumstances for 1,30,000 employees under the BSPS scheme change the pension rules (for a single company) so that it helps a German company, ThyssenKrupp?” he added.
CLSA took a negative view. “Tata now exploring possibility of joint venture with another steel player, such as Thyssenkrupp,” CLSA said in a note on Monday.
“Believe this is incrementally negative as a JV would only partly reduce UK exposure.”
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