Following the sale of its long products business at Scunthorpe in the UK to Greybull Capital earlier in the week, Tata Steel on Thursday informed lenders it has set itself a deadline of eight weeks to sell the remaining steel assets in the UK, reports Shayan Ghosh in Mumbai.
Should the company not be able to close out a deal with a single buyer, it would look to dispose of assets in piecemeal fashion, the company is reported to have indicated to lenders.
“Although the company would like to sell all its assets together, it has indicated it may not wait beyond May,” one of the lenders who attended the call told FE.
Bloomberg reported on Wednesday that Liberty House Group expects Tata Steel to “set an end of May bid deadline for the sale of its UK steel assets”. The report added Liberty House would not need to be backed by financiers to make an offer.
The assets are a part of Corus, the Anglo-Dutch steelmaker that Tata Steel had acquired in 2007 for $12.1 billion or 608 pence per share, outbidding Brazilian steelmaker CSN by 5 pence per share. Since then an additional $3 billion is estimated to have been invested in the business but it has never really been viable. The collapse in steel prices over the past couple of years, partially the fallout of the downturn in the Chinese economy, further exacerbated the situation.
Earlier this week, Tata Steel UK announced an agreement to sell the loss-making long products business, located in Europe, to family investment office Greybull Capital for a “nominal consideration”. The deal for the Scunthorpe business would be done without any redundancies, Greybull said, adding that the acquisition was completed for £1 and that it would take over all assets and “relevant liabilities” including 4,800 employees — 4,400 in the UK and 400 in France — and secure an appropriate funding package.
The sale covers several UK-based assets including the Scunthorpe steelworks, two mills in Teesside, an engineering workshop in Workington, a design consultancy in York, and associated distribution facilities, as well as a mill in northern France.
In two years — FY14 and FY15 — while the European operations reported an earning before interest, tax, depreciation and amortisation or Ebitda of $845 million, Kotak Institutional Equities pointed out that this masked a loss of $363 million for the UK operations. At the PAT level too, the UK business’ loss of about $2 billion was the main reason for the resulting net loss in the European operations of $1.9 billion. The European operations account for a large chunk of the total debt of close to $11 billion (Rs 71,798 crore) that has been weighing on the Tata Steel balance sheet.
In the nine months to December 2015, the European operations reported an Ebitda loss of £28 million (or Rs 278 crore at an average rupee-pound conversion rate of 99.30 for the period).The company took a goodwill impairment charge of Rs 6,500 crore in FY15 for the loss in value of operations in Europe, Canada and Mozambique. In Q3FY6, it took an exceptional charge of Rs 700 crore towards impairment and restructuring charges of the UK operations.