1. Tata Steel plans to rejig part of debt to sustainable levels

Tata Steel plans to rejig part of debt to sustainable levels

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.

By: | Mumbai | Published: September 21, 2017 5:36 AM
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. (Reuters)

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 400-600 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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