India Inc sheds loss-making foreign assets

Tata Steel, Hindalco, JSW Steel have either sold or taken impairment provisions

After almost a decade of problems, Indian companies are taking clear steps to rid unprofitable foreign assets they’d acquired during the boom years of 2006-07.

Tata Steel, Hindalco and JSW Steel have either sold off the stake in their foreign subsidiaries or taken impairment provisions on their assets in the March quarter.

On Tuesday, Tata Steel announced it would pay around $711 million to the British Steel Pension Scheme (BSPS), and offer the latter a 33 percent equity stake in its UK business. The deal would help Tata Steel to finally merge its European business with Germany's ThyssenKrupp. This would de-risk the parent company, Tata Steel, whose debt was ~73,000 crore as of March and has lost billions since the $12.1 bn acquisition of Corus Steel in 2007.

Tata Steel Europe was named a “hot spot” by former Tata Group chairman Cyrus Mistry soon after he was ousted in October last year.

“We are upbeat on the recent developments in the UK pension scheme, as this will not only de-risk the existing arrangement significantly. Also, now there are certainties with respect to the cost associated,” said Amit Dixit, analyst with Edelweiss.

The announcement comes within a week of Novelis, a subsidiary of Hindalco, announcing it had entered a joint venture deal with Kobe Steel, producer of aluminum rolled products in Japan, to sell its 50 per cent stake in its Ulsan, South Korea, facility for $315 million. Through the venture, Novelis and Kobe Steel will jointly own and operate the Ulsan facility, with each firm remaining responsible for its metal supply and commercial relationships. Hindalco’d acquired Novelis in 2006 for $6 bn and Hindalco never made money on the buyout in the past 10 years.

In 2006-07, both Tata Steel and Hindalco’s acquisitions were touted as India Inc’s global ambitions abroad but the commodity and financial markets meltdown led to losses at both. “These groups are finally realising it’s better to cut losses abroad and focus on the Indian market, which is growing very fast,” said the head of a conglomerate, asking not to be named.

On March 31, JSW said it had provided for impairment of ~6,210 crore towards its unit in the US. “The company has now taken steps to write off the loans given by the company to its US holding firm, with the ultimate objective to liquidate it and write off in the firm’s equity and preference capital in the Netherlands firm against provisions made in the books in the earlier years, amounting to ~5,258 crore,” it said.

It had added restructuring and consolidation of units didn't entail sale of its investment abroad and it would continue to have same the economic interest in the Netherlands unit and operations in the US and Latin America. Share prices of the three companies have flared by 27-28 per cent on the stock markets since January, as compared to a 15 per cent rise in the benchmark BSE Sensex. Lenders, led by ICICI Bank, have appointed consultancy PwC to sell Lanco’s Griffin coal mine in Australia, which has failed to service debt of ~6,200 crore. Analysts say in the coming quarters, more Indian firms will come forward to sell their foreign businesses which failed to make money.