HSBC and Morgan Stanley maintained overweight on the shares of Tata Steel as the brokerage firms believe that a potential joint venture with Thyssenkrupp AG bodes well for the company. Thyssenkrupp AG indicated yesterday that the company is likely to reach an in principle agreement to merge its European steel business with that of Tata Steel Ltd, in this month. The German group said on Monday that the talks were constructive and had entered the final stretch.
Tata Steel shares hit an over 6-year high of Rs 692 in intraday trade on Tuesday, up by more than 4.7%. The shares have returned more than 70% in the year so far. Tata Steel said yesterday that Britain’s pensions regulator has approved a regulated apportionment arrangement (RAA) in respect of the British Steel Pension Scheme (BSPS). According to a Reuters report, the pension fund which was estimated to be worth £15 billion, threatened to drag the company into insolvency, making it less attractive to a potential buyer of its assets.
As part of the RAA, a payment of £550 million from Tata Steel UK has been made to the BSPS and shares in Tata Steel UK, equivalent to a 33% economic equity stake in the company, have been issued to the BSPS Trustee under the terms of a shareholders’ agreement.
Morgan Stanley said that now that the RAA is completed, the company is all set for the Thyssenkrupp meger. The research firm believes that the joint venture would bode well for both the companies. Morgan Stanley has a buy rating on the stock with a target price of Rs Rs 741. HSBC told CNBC TV18 that the Thyssenkrupp joint venture will lead to further consolidation in the European Steel industry. HSBC has a buy on the stock with a target of Rs 750 per share.