Tata Steel UK announced on Monday it had inked 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 late March, following a strategic review, Tata Steel advised its subsidiary Tata Steel Europe (formerly Corus) to explore options to restructure the portfolio including a divestment of Tata Steel UK, partly or wholly. The sale may fetch Tata Steel very little but analysts point out that even if the steelmaker needs to absorb a part or all of the pension liabilities, it would be spared losses of $180-200 million that the Scunthorpe unit has been losing at $60-70 per tonne.
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.
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 (`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 `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 `700 crore towards impairment and restructuring charges of the UK operations.
