Tata Steel puts UK biz on block; Govt, unions hunt for options
London/Mumbai: Tata Steel has put its entire UK business on the block, putting thousands of jobs at risk amid a deepening crisis in the country’s once-storied sector that the Indian conglomerate had entered nearly a decade ago with a USD 14-billion takeover with much fanfare.
Jolted by the decision, announced in the wee hours today by Tata Steel after a marathon board meeting at its Mumbai headquarters, the unions have given a call for nationalisation while the government authorities have assured nearly 17,000 workers at the company plants across the UK that all possible options would be explored to safeguard their interest.
Tata Steel, one of the flagships of the over USD 100-billion Indian conglomerate Tata Group, said it has decided to “explore all options for for portfolio restructuring including the potential divestment of Tata Steel UK, in whole or in parts” amid a “deteriorating financial performance of the UK subsidiary in the last 12 months”.
Tata Steel plans to sell UK biz due to ‘deteriorating financial performance’
Tatas had entered the British steel sector, which once dominated the British economy, in early 2007 with acquisition of Anglo-Dutch steelmaker Corus after a fiercely fought takeover battle — which till date remains the biggest ever overseas acquisition by an Indian group.
Tata Steel had emerged the winner after a months-long takeover battle with Brazilian rival CSN that ended with a regulator-conducted auction running into nine rounds.
The decision was taken by Tata Steel, which employs nearly 17,000 people across UK, after intense deliberations till late night yesterday, including with the members of British trade unions.
Tatas have struggled hard to turn around Corus, which it renamed as Tata Steel Europe in 2010 and analysts feel it could be really difficult to find a buyer. They attributed the decision for sale of the business to the huge loans taken for Corus acquisition, as also to the tough environment being faced by steel firms in Europe, particularly in the UK.
Trade unions called on the government to take urgent action to save the crisis-ridden steel industry.
UK’s largest trade union Unite said: “The growing chorus of calls for re-nationalisation cannot be ignored by the Conservative government.”
Corus came into the being in 1999 after the merger with with Koninklijke Hoogovens of the erstwhile British Steel Plc, which was known as British Steel Corporation before being privatised in 1988.
Roy Rickhuss, the General Secretary of UK’s largest trade union of steelworkers, Community, called for an urgent meeting with the Prime Minister saying:
In view of the severity of the funding requirement in the foreseeable future, Tata Steel Europe Board will be advised to evaluate and implement the most feasible option in a time bound manner, it added.
The board also reviewed the proposed restructuring and the transformation plan for Strip Products UK, prepared by the European subsidiary in consultation with an independent and internationally reputed consultancy firm.
Following the announcement, Tata Steel shares today jumped by 6.75 percent to close at Rs 324.40 apiece on BSE, while the rating agencies including Standard and Poor’s said the decision to sell the UK business could be credit positive.
The company raised about USD 6.2 billion of term debt with an average life of around 5 years at competitive terms. This debt being non-recourse in nature was determined based on the cash flow servicing capability of its European operations and was to be serviced by Tata Steel UK (Corus) cash flows.
However, shortly after the deal an economic slowdown and continued weakness in European markets hit the company’s sales from which the steel maker is still trying to recover.
S&P Ratings Services said that Tata Steel’s plan to restructure its UK operations, which could include potential divestment, will be positive for the credit profile of the company.
While the global steel demand, especially in developed markets like Europe, remained muted following the financial crisis of 2008, trading conditions in the UK and Europe have rapidly deteriorated more recently.
It is due to structural factors which includes global oversupply of steel, increase in third country exports into Europe, high manufacturing cost, continued weakness in domestic market steel demand and volatile currency, it said.
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Source:Zeenews
