Tata Steel can dou­ble ca­pac­ity in 5 years: Chan­drasekaran

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Tata Group Chair­man N Chan­drasekaran is hope­ful that a delever­aged Tata Steel is bet­ter po­si­tioned to grow faster and dou­ble ca­pac­ity over the next five years af­ter its deal with Ger­man gi­ant Thyssenkrupp to merge their steel op­er­a­tions in Europe. The steel­maker has around 13 mt ca­pac­ity at its two plants in Kalin­gana­gar in Odisha and Jamshed­pur and hopes to dou­ble it over the next five years or­gan­i­cally or in­or­gan­i­cally.

“For Tata Steel In­dia, which has huge op­por­tu­ni­ties to grow both or­gan­i­cally and in­or­gan­i­cally, this merger gives op­por­tu­ni­ties to fo­cus on rapid growth so that we can main­tain our lead­er­ship po­si­tion and con­tinue to grow and cap­ture the mar­kets,” Chan­drasekaran told re­porters af­ter an­nounc­ing the 50:50 joint ven­ture with Thyssenkrupp.

Un­der the terms, Tata Steel Europe will be­come Thyssenkrupp-tata Steel to be based in Am­s­ter­dam to cre­ate the sec­ond-big­gest Euro­pean steel­maker. “The merger gives Tata Steel a bet­ter and stronger bal­ancesheet for rapid growth. We are open to both or­ganic and in­or­ganic growth. Tata Sons will sup­port Tata Steel in ev­ery man­ner to grow rapidly so that we dou­ble our ca­pac­ity from around 13 mil­lion tonnes now,” Chan­dra said.

On the merger, which has been in progress for the past twoand-a-half years, he said, “it gives Tata Steel Europe a sus­tain­able fu­ture as it en­sures all our pro­duc­tion fa­cil­i­ties are free of cap­i­tal con­straints. It also of­fers good syn­er­gies in terms of prod­ucts and R&D ca­pa­bil­i­ties”. Ear­lier in the day, Tata Steel signed an agree­ment with Thyssenkrupp to merge its op­er­a­tions in Europe in an equal joint ven­ture com­pany in­volv­ing no cash trans­ac­tion.

“Tata Steel and Thyssenkrupp have signed an agree­ment to cre­ate No. 2 Euro­pean steel com­pany by com­bin­ing the flat steel busi­nesses of the two in Europe and the steel mill ser­vices of the Thyssenkrupp group,” it said in a state­ment.

The pro­posed JV to be named Thyssenkrupp Tata Steel would be head­quar­tered in Am­s­ter­dam in the Nether­lands and sup­ply pre­mium and dif­fer­en­ti­ated prod­ucts to cus­tomers, with an­nual ship­ments of about 21.3 mt of flat steel, the state­ment said, adding that this will cre­ate the largest steel­maker in Europe af­ter Arcelor­mit­tal.

Tata Steel Group ex­ec­u­tive di­rec­tor Koushik Chat­ter­jee ex­pects merger to get all the clear­ances, in­clud­ing from anti- trust au­thor­i­ties, by De­cem­ber 2018 or early 2019. “We hope to be­gin due dili­gence from March 2018 and seek ap­provals from anti-trust au­thor­i­ties that we ex­pect by De­cem­ber 2018 or early 2019,” Chat­ter­jee said.

On the im­pact of the deal on the bal­ancesheet of Tata Steel, which is sad­dled with a debt of over Rs 74,000 crore, he said of the to­tal debt, 2.5 bil­lion eu­ros will move into the JV, which will have a rev­enue of 15.9 bil­lion eu­ros and an Ebitda of 1.56 bil­lion eu­ros. The re­main­ing debt will be on the book of Tata Steel In­dia as ex­ter­nal debt.

The merger will be through a non-cash trans­ac­tion based on fair val­u­a­tion where both share­hold­ers would con­trib­ute debt and li­a­bil­i­ties to achieve an equal share­holder in the ven­ture, he said. On the sav­ings the merger would bring in, Chat­ter­jee said the JV ex­pects an­nual syn­er­gies of 400-600 mil­lion eu­ros on a sus­tain­able ba­sis, but re­fused to elab­o­rate. The JV will also have an ad­di­tional bur­den of around 3.6 bil­lion eu­ros of pen­sion li­a­bil­i­ties of Thyssenkrupp.

“Thyssenkrupp and Tata Steel are cre­at­ing a sus­tain­able fu­ture for their Euro­pean steel ac­tiv­i­ties by form­ing a JV. With Tata Steel, we've found a part­ner with a very good strate­gic and cul­tural fit,” Thyssenkrupp Chair­man Hein­rich Hiesinger said in a sep­a­rate state­ment.

While the Essen, Ger­many-based Thyssenkrupp has around 11.5 mt ca­pac­ity with back­ward in­te­gra­tion, Tata Steel Europe, which in­cludes the heav­ily loss-mak­ing Bri­tish op­er­a­tions, has around 9.8 mt in­stalled ca­pac­ity with­out any back­ward in­te­gra­tion. Whether the new JV will look at ca­pac­ity ex­pan­sion, Chat­ter­jee an­swered in the neg­a­tive, say­ing Euro­pean steel mar­ket is not a grow­ing one.

So, the fo­cus ide­ally should be on im­prov­ing ca­pac­ity util­i­sa­tion and not ca­pac­ity ad­di­tion. He also ruled out shut­ter­ing pro­duc­tion lines or any of the two plants -- Tal­bot in Bri­tain and Umeniden in the Nether­lands -- or trim­ming the work­force. While Tata Steel Europe em­ploys nearly 18,000, Thyssenkrupp has 30,000. The new en­tity will em­ployee 48,000 spread across 34 locations.

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