Due diligence for Dutch unit sale to be over by December end: Tata Steel

Tata Steel is expecting that the due diligence for the sale of Netherlands business will be complete by the end of December. The company had said late last week that it was in discussions with Swedish steelmaker SSAB AB for the sale of the Netherlands business, including Ijmuiden steelworks.

Once the diligence is complete, the company will begin conversations on finalising the commercials and the negotiations on the documentation. Assuming everything goes as per plan, the deal will reach a binding stage soon after December, the company management said in a teleconference with the media on Tuesday.

In addition, the process to separate Tata Steel Netherlands and Tata Steel UK business has also been initiated. The company said that this is being done because Tata Steel will pursue separate strategic paths for the Netherlands and UK business in the future.

TV Narendran, CEO and managing director, told reporters that post the sale of Netherlands business, the aim was to make the UK business self sustaining, without help from the parent in India. “Strategy in UK is to make it self sustaining and we are close to that. The mandate to management is to run it without depending on India for support and we believe we can do that,” Narendran said.

With the restructuring of European operations, the company would look at ways to optimise costs and run a smaller footprint more cost efficiently. The company’s footprint will be limited to a 3 million tonne plant in Port Talbort in the UK and some other businesses there. He added that Tata Steel Europe operations have been on cash neutral to cash positive in the last two quarters and have not got any support from India. “Lot of hard work has been done in UK business and it is not what it used to be,” he said.

The company has also been in discussions with the UK government for support, which Narendran said was needed to create a long term sustainable business in the UK. “The conversations that we are having with the government is to look at what can be done to make this business sustainable in the long term, take out costs, add value. This is not growth capex, we are not looking to grow the business, but there are investments that can be made which can make the operations greener, more cost effective and add more value to the product mix,” he said.

Another significant achievement for the company during the quarter was its debt reduction target. The company was able to meet its stated objective of reducing debt by $1 billion annually, which it achieved in the first half of the year itself. Tata Steel reduced its net debt by Rs 8,197 crore during the September quarter, and the net debt stood at Rs 96,495 crore as on September 30, 2020. The gross debt of the company stood at Rs 1.14 lakh crore. Koushik Chatterjee, executive director and CFO, Tata Steel, said, “Going forward, the gap between net debt and gross debt will shrink, because we are sitting on a significant amount of cash and cash equivalent which we will be using prudently overtime in a progressive manner to repay more debt.”

On the outlook for the second half of the year, Narendran said that the demand levers are good, aided by direct recovery and the impact of government stimulus. “First two quarters were bad due to the pandemic and lockdowns, we are quite bullish about the next two quarters and normally January-June is the best period for steel consumption in any year. We are seeing lot of consumers are far more positive than they were 3-4 months back and that is good enough for us, so I think stimulus is having its impact,” he said.

Meanwhile, on the merger of Tata Metaliks and Indian Steel and Wire Products into Tata Steel Long products, Chatterjee said that the company is working to see what combined synergies will this have. “Between the two of them there are upstream synergies because both the companies have similar size blast furnaces, the procurement synergies, the corporate synergies that will come in, so that’s all in the industrial plan that we have,” he said. The ongoing plans of doubling capacity at Tata Metalliks will proceed as per plan and the company will review long products for its growth plans in due course of time.

Tata Steel has said that it will be 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. The long-products merger is a first step in that direction.