In­abil­ity to Find a Quick Buyer May Make Tata Steel’s UK Exit Dif­fi­cult

Un­prof­itable as­sets, high labour costs make sale tough: Mac­quarie

The Economic Times - - Money -

Mum­bai: Tata Steel’s de­ci­sion to sell its UK busi­ness has driven the stock of late, but those track­ing the stock be­lieve find­ing a buyer for its Euro­pean oper­a­tions in a swift man­ner may be dif­fi­cult. Un­prof­itabil­ity of as­sets, the China fac­tor, huge pen­sion li­a­bil­ity and high labour, reg­u­la­tory and energy costs are some of the as­pects that re­search firm Mac­quarie has cited for main­tain­ing an un­der­per­form rat­ing on the stock.

Tata Steel shot up by over 6% on Wed­nes­day as the UK’s busi­ness min­is­ter Sa­jid Javid air-dashed to Mum­bai to meet Tata Group chief Cyrus Mistry for dis­cussing the con­tours of the sale process. The stock, how­ever, re­treated 1.37% on Thurs­day at ₹ 323.95 on the BSE as re­ports emerged that Tatas may go for an im­me­di­ate sale of busi­ness only if a buyer emerged for en­tire as­sets at one go.

Mac­quarie has a 12-month price tar­get of ₹ 129 on Tata Steel.

“The stock has run up sharply and we think it is fac­tor­ing in all the best

pos­si­bil­i­ties, leav­ing it open to down­side risks,” Mac­quarie an­a­lysts Su­man­gal Ne­va­tia and Rakesh Arora wrote in a re­port. “The mar­ket is en­thused by the pos­si­bil­ity of the exit of Tata Steel from UK’s un- prof­itable as­sets. How­ever find­ing a buyer is un­likely to be very easy. Moth­balling could en­tail very high costs given strict labour laws.”

In­dian-ori­gin busi­ness­man San­jeev Gupta of Lib­erty Group has ex­pressed an in­ter­est in ac­quir­ing Tata Steel’s Port Tal­bot plant in South Wales.

“Steel­makingintheUKun­derthe cur­rentspreadof stee­landraw­ma­te­rial­makesnosense­tousa­tall.New buy­er­shavestrug­gled,aswe­saw­inthe caseof theTeeside­fa­cil­i­tyof Tata Steel­which­wasac­quired­bySSIof Thai­landthree­years­backand­now­fi­nal­ly­hashad­tobe­moth­balled.More ev­i­dence­canbe­seeninthe­p­ro­longed dis­cus­sion­sTataS­teel­has­been­hav­ing with­Grey­bull­forthe­sa­leof it­s­long steel­divi­sion.Al­readyt­woyear­shave gonebyand­noso­lu­tion­isin­sigh­tas yet.PortTal­both­aslit­tle­fu­ture­forits blast­fur­nace­sand­will­have­to­beul­ti­matelyshut­down,”there­port­said.

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