Tata plan to sell UK unit deep­ens Bri­tain's steel cri­sis

The Pak Banker - - COMPANIES/BOSS -

Tata Steel Ltd., part of In­dia's big­gest con­glom­er­ate, said a slump in global prices has forced it to con­sider sell­ing its U.K. busi­ness, a de­ci­sion that threat­ens to ac­cel­er­ate the demise of Bri­tain's steel in­dus­try.

Global over­sup­ply, high man­u­fac­tur­ing costs and ris­ing steel ex­ports mean trad­ing con­di­tions in the U.K. and Europe have "rapidly de­te­ri­o­rated," Mum­bai-based Tata Steel said in a state­ment. Tata Steel Europe's board will "ex­plore all op­tions for port­fo­lio re­struc­tur­ing," in­clud­ing a po­ten­tial di­vest­ment of the U.K. unit, the pro­ducer said.

Tata's U.K. as­sets, once con­trolled by state-owned Bri­tish Steel and bought for $12 bil­lion a decade ago, in­clude the giant Port Tal­bot works in South Wales. The risk of los­ing thou­sands of in­dus­trial jobs in an eco­nom­i­cally de­prived re­gion will put pres­sure on David Cameron's gov­ern­ment to en­sure it re­mains a go­ing con­cern.

The gov­ern­ment wouldn't rule out tem­po­rary state con­trol as a way to en­sure suf­fi­cient time for a buyer to be found, U.K. busi­ness min­is­ter, Anna Soubry, said in a BBC ra­dio in­ter­view.

"We are and have and con­tinue to look at all op­tions and I do mean all op­tions," Soubry said. We "want to see steel be­ing made at Port Tal­bot/"

Euro­pean mills are strug­gling to con­tend with a flood of cheap steel ex­ports from China, which ac­counts for about half of global out­put, boost­ing com­pe­ti­tion and erod­ing prof­its world­wide. Tata Steel closed plants and cut jobs in the U.K. last year as China's ex­ports surged to an all-time high, while lo­cal pro­duc­ers con­tended with sink­ing do­mes­tic prices and a glut of ma­te­rial.

"It comes back to just how tough the steel mar­ket is," Syd­ney-based Morn­ingstar Inc. an­a­lyst Mathew Hodge said by phone. "Some of those guys through the ac­qui­si­tions were lead­ing the charge, but it's cycli­cal and low mar­gin and high capex. Ag­gres­sive con­sol­ida­tors can be­come un­stuck."

Tata Steel's 2007 agree­ment to ac­quire Corus Group Plc, its largest ever ac­qui­si­tion, sig­naled an ef­fort to boost In­dian man­u­fac­tur­ing and build global scale. A three-month takeover race saw Tata raise its of­fer by more than a third. The pur­chase fol­lowed the about $38 bil­lion takeover of Arcelor SA a year ear­lier by Mit­tal Steel Co., founded by In­dian bil­lion- aire Lak­shmi Mit­tal.

A re­view of Tata's U.K. strip prod­ucts unit, cen­tered on Port Tal­bot, con­cluded planned re­struc­tur­ing pro­pos­als were un­af­ford­able, the pro­ducer said in the state­ment.

"It is vi­tally im­por­tant that Tata is a re­spon­si­ble seller of its busi­nesses and pro­vides suf­fi­cient time to find new own­er­ship."," Roy Rick­huss, general sec­re­tary of the steel­work­ers' U.K. union Com­mu­nity, said in a state­ment.

Tata Steel is con­tin­u­ing dis­cus­sions with Grey­bull Cap­i­tal LLP over a po­ten­tial sale of its U.K. long prod­ucts busi­ness and also hold­ing talks with the U.K. gov­ern­ment, it said. That agree­ment cov­ers Scun­thorpe steel­works in Eng­land as well as mills in Teesside and north­ern France.

The pro­ducer is seek­ing to pare debt by sell­ing loss-mak­ing units in the U.K. The com­pany an­nounced 1,050 job cuts in the coun­try in Jan­uary, and last week reached an agree­ment to sell its Cly­de­bridge and Dalzell plants in Scot­land to the Scot­tish gov­ern­ment, which will then sell them on to Lib­erty House, a pri­vate com­pany.

Tata Steel, with a cur­rent mar­ket value of about $4.5 bil­lion, has crude steel pro­duc­tion ca­pac­ity in the U.K. of about 11 mil­lion met­ric tons a year, ac­cord­ing to its web­site. "Given the sever­ity of the fund­ing re­quire­ment in the fore­see­able fu­ture, the Tata Steel Europe board will be ad­vised to eval­u­ate and im­ple­ment the most fea­si­ble op­tion in a time bound man­ner," the pro­ducer said in its state­ment dated Tues­day, March 29. The U.K. busi­ness has suf­fered as­set im­pair­ments of 2 bil­lion pounds ($2.9 bil­lion) in the past five years, it said.

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