‘JV will be run on one firm, one balance sheet’
Tata Steel Executive Director and Chief Financial Officer KOUSHIK CHATTERJEE outlines the importance of the ThyssenKrupp deal to Ishita Ayan Dutt. Excerpts:
A day after Tata Steel and Thyssenkrupp sealed the 50:50 joint venture, Tata Steel Executive Director and Chief Financial Officer KOUSHIK CHATTERJEE outlines the importance of the deal to Ishita Ayan Dutt
What will be the impact of the JV with Thyssen Krupp on Tata Steel’ s balance sheet?
Strategically, this is an important JV for Tata Steel and we are committed for the long term. Having said that, financially, once the JV is formed and post completion of accounts adjustments, we will deconsolidate the European business from the Tata Steel balance sheet. One of the most important impacts will be the structural deleveraging that will be achieved in Tata Steel when about ^2.5 billion of debt is transferred to the new company’s balance sheet without any recourse to Tata Steel. The earnings of the JV will be accounted for on equity basis and we expect robust levels of financial performance.
What kind of cape xis envisaged by the JV in the near term? How much of it would be on the Tat a Steel side?
Once the JV is formed, there is no Tata Steel side or ThyssenKrupp side. The JV will be run on the principle of one company, one cash flow and one balance sheet. There is a capex plan that has been captured in the joint business plan prepared by the clean team of both firms. There are currently some capex programmes in all sites and the JV will determine its capital allocation principles in a manner that ensures greater accountability for capital deployed focusing on enhanced asset capability and reliability that results in generation of better returns.
Would Tat a Steel continue to hold 50 percent in this JV in the longterm? What is the group’s outlook on Europe business?
As I mentioned, Tata Steel is committed to the JV and as shareholders will work hard towards its success. The JV has some unique capabilities and will be structurally resilient. We will work with our co-partners and the company to realise the strategic vision of MOST IMPORTANT IMPACT WILL BE STRUCTURAL DELEVERAGING THAT WILL BE ACHIEVED IN TATA STEEL both shareholders.
What is the reason behind the slow down in Tat a Steel Europe’ s performance and when do you see an upside?
In the last two quarters, we have had some one off operational issues in both the Netherlands and the UK. These have been addressed and we expect both the physical and financial performance of the business to improve in the near future.
What are the lessons learnt from C or us integration and how would it be implemented to make the JV work?
The context of an acquisition and the JV is very different and I don’t think the same is comparable. There was no possibility of proximate integration between Corus and Tata Steel, as we were in two different geographies and were serving different markets. Our integration then was more in terms of best practice sharing, common approach on performance improvement, and having similar standards of governance, among others. In this JV, given the proximity of the hubs in the same geography, serving the same markets, similar cost structure, etc, the integration philosophy to drive a one company, one cash flow approach is not only relevant but a necessity. Hence, our post merger integration strategy will focus on making this into one seamless company.
Would this JV help Tat a Steel focus on growth opportunities in India?
Tata Steel’s India plan has already been made known earlier by our chairman. We are at a very interesting point in time. With the underlying commodity cycle globally being stable coupled with the fact that the India growth story is expected to provide enough tailwinds in the near future, steel demand will continue to grow and our strategic aim is to grow along with the market. Hence, we are following a combined strategy to pursue organic and inorganic growth in India with the expansion in Kalinganagar and pursuing the acquisitive strategy opportunity provided by the Insolvency and Bankruptcy Code process.
B hush an Steel was expensive. Bhushan Power & Steel may also come your way. How would it be funded?
I would not agree with you on Bhushan Steel simply because if you compare the capital cost, time and uncertainty associated with the alternative of building a greenfield steel plant, coupled with the asset quality and downstream capability of Bhushan Steel and on top of that also add the proximate synergies with Tata Steel, the acquisition comes with a very attractive proposition and price. We have also funded the acquisition with a prudent system capital structure with ~180 billion of equity and ~165 billion of debt. Incrementally, the external debt to Ebidta in 18-24 months will not be more than 3x, which is in a comfortable range. I can’t comment on Bhushan Power, as it is in the courts.
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