Tata Steel has signed an agreement to sell the loss-making 4.5MT long product Scunthorpe steel plant to UK-based investment firm Greybull Capital for a nominal consideration of one pound with the latter taking assets and relevant liabilities. (Photo: Reuters)
Tata Steel shares declined 3.8 per cent in early trade on Tuesday after the company said that it has signed an agreement to sell the loss-making 4.5MT long product Scunthorpe steel plant to UK-based investment firm Greybull Capital for a nominal consideration of one pound with the latter taking assets and relevant liabilities. The deal is expected to complete within eight weeks. The Scunthorpe steel plant will be renamed British Steel and will continue to be run by the existing management, who will implement the turnaround plan.
Brokerage houses have cautious views on Tata Steel shares post the deal. On a month-to-date basis, share price of Tata Steel gained 3.65 per cent to Rs 331.15 till April 11, whereas the BSE Sensex skid 1.2 per cent during the same period.
Apart from Scunthorpe steel plant, Tata Steel has also put its 5.5MT (excluding Scunthorpe steel plant) UK-business for sale as it intends to lower its cash drain which has been eating into its margins significantly for quite some time now. Tata Steel has engaged the services of KPMG LLP as the advisers to the sale process of Tata Steel UK while Slaughter and May will be the legal advisers to the proposed transaction.
According to Angel Broking, the sale of these assets should help reduce the losses from the European business and improve profitability, the nominal consideration implies that Tata steel would not be able to pare its debt with this sale, which is negative.
The exact details of the deal amount, treatment of debt and pension liabilities remain uncertain. Angel Broking in a research note said, “With steel margins remaining under pressure across geographies, we retain our Neutral rating on the stock.”
Edelweiss downgraded Tata Steel to ‘Reduce’ from ‘Hold’ and has set the target price at Rs 301. It further added the company will realise up to Rs 20,000 crore in sales of assets but that is already priced in.
For the week ended December 2015, the company reported a consolidated net profit of Rs 2127.23 crore, down 1453.97 per cent, against net profit of Rs 157.11 crore in the same quarter last year.