UK engages bankers to advise on Tata Steel bailout
07 September 2020
UK’s Treasury has engaged investment bankers to devise a rescue plan for Britain’s biggest steel maker after its current owner Tata Steel abandoned months of discussions about a deal that could save thousands of jobs.
The government brought in investment bankers to suggest bail-out plans after the crisis at Tata Steel Europe hit inflection point as the Indian parent informed the British government that it won't be able to fund the losses in the UK.
"Tata group chairman N Chandrasekaran is reported to have told company executives in January that things cannot go on indefinitely, although the steelmaker will have to make up for current losses.
Tata Steel reported a consolidated net loss of Rs4,609 crore in the April-June quarter as the UK business continued to pile up losses. Tata Steel’s Indian unit posted a profit of Rs1,193.27 crore in the first quarter, despite the lockdowns.
Credit Suisse, along with the management consultancy McKinsey, is to advise the government on negotiations with Tata Steel, ending speculation that government talks with the Indian industrial conglomerate on reviving the plant had ended.
Tata Steel UK’s plant in Port Talbot, south Wales is Britain’s largest steel plant and employs 3,500 people. Tata employs about 8,000 people in the UK.
Tata Steel had been sought a substantial injection of taxpayer money into the loss-making unit, but treasury officials rejected it because the parent company would have written off equivalent debts without committing much of its own new capital.
The government has already enlisted some of Credit Suisse’s senior bosses to help in the bailout from the Covid-19 economic fallout.
Former Credit Suisse banker Charles Donald heads UK Government Investments (UKGI), which oversees `Project Birch’, the rescue programme for companies seen as structurally important to the UK economy but that have been unable to obtain funding from other sources.
Reports citing an official spokesman said the government is very supportive of the UK steel sector and valued its contribution to the UK economy, adding that the government regularly uses external advice to better understand how to support businesses.
Tata Steel Europe also said it is in active discussions with the UK government on several options for the future of its UK operations, including potential co-operation and government participation to make it sustainable.
The management of Tata Steel is left with limited options to turn around its sick European business. N Chandrasekaran at the company's annual general meeting (AGM) had said the company simplified the structure in Europe by reducing the number of subsidiaries to 151 from over 300. He also said the management is actively involved in finding a sustainable and structural solution in Europe.
Tata Steel’s integrated report for 2020 had cited CEO and managing director TV Narendran and executive director and CFO Koushik Chatterjee as saying that significant market headwinds, particularly in the last two quarters, and the disruptions caused due to the Covid-19 pandemic, have made the issue complex in Europe.
The company is running a transformation programme, which aims at reducing the cost of operations, to improve productivity, focus on marketing and sales, and improve competitiveness both in the UK and the Netherlands.
The debt-ridden steelmaker has realised benefits of about Euro 370 million in the last financial year due to these improvement programmes.
Earlier, Tata Steel and German steelmaker Thyssenkrupp planned to combine the steel businesses in Europe to turn around their ailing businesses. But the proposal failed to receive the approval from the European Commission. Tata Steel Europe, formerly Corus Plc, was acquired by the Indian steelmaker for $12 billion in 2007. It has a 12.3 million tonne steel-making capacity.
Tata Steel had earlier sought 900 million Pound financial aid from the UK government in exchange for an equity stake of up to 50 per cent in its UK business.