Tata Steel to continue exploring sale of European long-products business as talks with Klesch Group collapse
13 August 2015
Tata Steel Ltd yesterday said that it will continue to explore sale of its loss-making long-products business in Europe, after talks with Swiss-based Klesch Group collapsed.
"I think it will be fair to say that we will require 4-5 months to at least understand the strategic options," said Koushik Chatterjee, executive director and CFO of Tata Steel.
Last week Tata Steel spun off the long-products unit into an independent company to explore strategic options after talks with Klesch failed.
Tata Steel, which expanded to Europe through its $13-billion acquisition of Corus in 2007, had in October last year signed an agreement with the Klesch Group for due diligence and negotiations for a potential sale.
The potential sale includes UK-based Scunthorpe steelworks, mills in Teesside, Dalzell and Clydebridge in Scotland, an engineering workshop in Workington and a rail consultancy in York, as well as other operations in France and Germany.
About 6,500 people are employed at Long Products Europe and its distribution facilities. Tata Steel employs 30,500 people across Europe, including 17,500 in the UK.
Tata Steel Europe, the region's second-largest steel producer, holding around 45 per cent share in the UK market, had earlier said that the European steel industry was emerging from one of the most challenging economic periods in its history.
The climate in Europe towards the steel industry has worsened due to high raw material and energy prices, CO2 allowance trading, Russia's accession to the World Trade Organisation resulting in lower tariffs for Russian steel exports, and in particular the reducing consumption levels in Europe.
Several European steelmakers have resorted to scaling back production, idling plants, and selling non-core assets like Luxemburg-based ArcelorMittal and Germany's Thyssenkrupp.
The company had said earlier that producing steel profitably in Britain has become difficult given cheap imports and demand that has yet to recover to levels seen before the 2008 financial crisis. Also, the UK steel sector's labour, logistics and energy costs are higher even than mainland Europe, which itself struggles to compete on a global level.
Tata Steel plans to spend £800 million ($1.3 billion) at its Welsh facilities over the next five years, including £185 million on rebuilding a blast furnace at Port Talbot, and an additional £53 million on upgrading the steel-making shop.
Tata Steel, the top producer of steel in India, has been trying to pare its huge debt to lower interest costs. It has to repay $5 billion worth of debt by the end of 2015. According to its latest balance sheet, the company has over $14.4 billion of bonds and loans outstanding.
The combined Tata Steel group has crude steel capacity of more than 28 million tonnes and employs around 80,000 people across four continents.
The Mumbai-based company posted an $889 million quarterly loss on 20 May, inflated by a hefty impairment on its UK business.