Tata Steel plans to re­jig part of debt to sus­tain­able lev­els

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With a sig­nif­i­cant por­tion of debt in Tata Steel’s Euro­pean busi­ness set to be trans­ferred to the pro­posed 50:50 joint ven­ture with Ger­man in­dus­trial ma­jor Thyssenkrupp AG, the for­mer will be look­ing to re­struc­ture the re­main­ing debt on its bal­ance sheet to more sus­tain­able lev­els. Koushik Chat­ter­jee, group ex­ec­u­tive di­rec­tor, Tata Steel, said the debt was roughly at around $10-11 bil­lion at the start of the cur­rent fi­nan­cial year, of which $2.8 bil­lion will be trans­ferred to the JV. Of the bal­ance debt, some por­tion of around $1.5-2 bil­lion of work­ing cap­i­tal sup­port lines will also un­wind and be re­placed by new lines, while the re­main­ing debt will re­main with Tata Steel. “We will re­struc­ture the debt which will be with Tata Steel, and will also look at the cap­i­tal struc­ture of Tata Steel such that it is lot more ro­bust than be­fore,” Chat­ter­jee said. Or­ganic and in­or­ganic op­por­tu­ni­ties of growth will be part of the com­pany’s strat­egy to make it fi­nan­cially strong. “So, we have to look at the holis­tic fi­nan­cial strat­egy of Tata Steel go­ing for­ward post the joint ven­ture and look at ad­dress­ing it at a more com­pre­hen­sive man­ner such that Tata Steel is strong fi­nan­cially,” he said.

With­out di­vulging de­tails of the as­sets that Tata Steel might be in­ter­ested in the steel space in In­dia, Chat­ter­jee said the com­pany is closely watch­ing the process which “is in early to mid-stages”. As for the as­sets it might be in­ter­ested in, Chat­ter­jee said, “It is about fit­ment to strat­egy, the qual­ity of as­sets, at­trac­tive­ness of the busi­ness and how do we cre­ate value for those as­sets and for our­selves.” Mean­while, for the pro­posed Thyssenkrupp-tata Steel JV, he said the way the bal­ance sheet has been struc­tured is to en­sure that it is a sus­tain­able com­pany, can thrive by it­self and is matched by the un­der­ly­ing cash flows of the com­pany.

“We are talk­ing about a pre-syn­ergy pro forma EBITDA (earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­sa­tion) of 1.5 bil­lion euro. We have said that the syn­er­gies at cur­rent es­ti­mates are in the range of 400600 mil­lion euro in 2-3 years of for­ma­tion of the JV. So, if you as­sume about 2 bil­lion Ebitda and if we are talk­ing about 6.5 bil­lion euro of li­a­bil­i­ties that is a very sus­tain­able cap­i­tal struc­ture in the steel in­dus­try.” The two com­pa­nies have said in terms of li­a­bil­i­ties, Tata Steel Europe will trans­fer 2.5 bil­lion euro to the JV, while Thyssenkrupp Steel Europe will trans­fer about 3.6 bil­lion euro of its steel pen­sion li­a­bil­i­ties to it.



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