Tata Steel initiates discussions with SSAB for Dutch unit sale

In a move that will help deleverage its balance sheet, Tata Steel on Friday said it had initiated discussions with SSAB Sweden for the sale of its Netherlands business, including Ijmuiden steelworks. The company said it had also commenced discussions with the supervisory board and the board of management of Tata Steel Netherlands so that the process would move to the next stage that would include due diligence and stakeholders’ consultations.

“The company is committed to deploy proceeds of any strategic restructuring towards additional deleveraging of the balance sheet,” the statement said.

The company also said it had initiated the process to separate Tata Steel Netherlands and Tata Steel UK business. This is being done because Tata Steel will pursue separate strategic paths for the Netherlands and UK business in the future. SSAB also issued a statement about holding discussions with the Tata Steel for a potential deal in the Netherlands business, however, it indicated that the discussions were preliminary and no decision had been reached yet.

“The discussions with Tata are ongoing but no decisions have been made. There can be no certainty that any transaction will materialise, nor as to the terms of any such potential transaction. Further announcement will be made in due course,” SSAB said in a statement.

If the deal goes through, Tata Steel will be able to stop the cash burn that is currently seen in its European business. Also, it will be a big step in the company’s current efforts to deleverage. This move would allow Tata Steel to focus more on India business.

Separately, Tata Steel reiterated that it continues its dialogue with the UK government on potential measures to safeguard the long-term future of Tata Steel UK. “Tata Steel is also reviewing all options to make the business self-sustaining without the need for any funding support from Tata Steel India in the future,” it said.

Back home, Tata Steel said it was undertaking a reorganisation exercise in its domestic business, folding its listed and unlisted subsidiaries into four clusters. These business clusters are long products, downstream, mining and utilities and infrastructure.

In this step towards consolidation and corporate simplification, the boards of Tata Steel Long Products, Tata Metaliks and Indian Steel and Wire Products, on Friday, approved the merger of Tata Metaliks and Indian Steel and Wire Products into Tata Steel Long products. “The proposed consolidation will create significant synergies and position the company towards future growth in the long products segment. We expect to complete the process in next 6-9 months, subject to necessary regulatory approvals,” the statement said.

Meanwhile, with a significant improvement in product mix towards domestic sales, higher value-added products and a sharp reduction in costs, Tata Steel posted a strong operational performance. The consolidated net sales were up 7% on a year-on-year basis to Rs 37,154 crore for the quarter ended September 30, 2020, while the consolidated Ebitda surged a sharp 60% y-o-y to Rs 6,217 crore. Consequently, the Ebitda margins were up a good 560 basis points y-o-y to 16.7%.

The net profit, however, registered a decline of 59.5% year-on-year to Rs 1,635 crore for the quarter. This is because the company had received a tax credit of nearly Rs 4,050 crore in the corresponding quarter last year, which was absent this quarter. Compared with the preceding June 2020 quarter, the company’s net profit jumped nearly twofold. Also, profit before tax in the September 2020 quarter stood at Rs 2,248.26 crore much higher versus a loss before tax of Rs 6.54 crore in the quarter ended September 2019.

Tata Steel’s consolidated Ebitda per tonne jumped to Rs 8,396 versus Rs 5,963 in the corresponding quarter. On a standalone basis too the Ebitda margin crossed 29% with an Ebitda per tonne of Rs 13,127. Commenting on the company’s performance, TV Narendran, CEO and MD, Tata Steel said, “The resilience of our business model and the commitment of our teams has enabled us to ramp up capacity utilisation to normal levels and achieve highest ever sales despite the ongoing challenges due to the Covid-19 pandemic. We are now embarking on reorganising our Indian subsidiaries into four verticals to drive scale, synergies and simplification which we are confident will create value for our stakeholders.”

The company reiterated that it is committed to deleveraging of $1 billion annually and has reduced net debt by Rs 8,197 crore during the quarter. Koushik Chatterjee, executive director and CFO, Tata Steel, said, “We continue to pivot the business decisions on cash while aggressively managing costs and being highly disciplined on capex to ensure we progress on our deleveraging journey. This quarter we reduced our consolidated net debt by Rs 8,197 crore which is now below March 2019 levels. We ended second quarter with a liquidity buffer of Rs 24,323 crore with about Rs 17,824 crore in cash & cash equivalents which along with robust internal generation gives us enough headroom to further deleverage going forward.”