Tata Steel has put its loss-making UK operations, including the one in Port Talbot, on the block after rejecting a turnaround plan prepared by the European subsidiary as it requires long-term capital commitments.
After selling 6.5 million tonnes of capacity in the UK, the company will be left with a similar production capacity in the Netherlands, its only profitable unit in Europe.
Koushik Chatterjee, Group Executive Director (Finance and Corporate), Tata Steel, said the decision to find a suitor for the UK asset was taken after a seven-hour-long board meeting on Tuesday, and the company would work closely with the government to find the best possible solution.
Refusing to set any timeframe for the exit, he said the decision was conveyed to the board of Tata Steel Europe, which would chalk out the future strategy.
Besides dumping by China and weak demand, the UK operations were hurt by currency volatility as the company pays for inputs in dollars and realises a lower value for the finished products by selling in euros across Europe. This has squeezed margins and led to the UK operations logging negative Ebitda (Earnings Before Interest, Taxes, Depreciation and Amortisation), Chatterjee said. The firm has long-term debt of €3 billion across operations in Europe.
Asked about the possibility of finding a buyer given the sectoral downturn, Chatterjee said similar doubts had been raised when the company tried to sell its long-products division in Europe, but three financial investors had come forward, and the company had zeroed in on Greybull Capital. It is confident of similarly finding a taker for the UK assets, he said.
Even under adverse market conditions, the Tata Steel Group had extended substantial financial support to the UK business and had suffered asset impairment of over £2 billion in the past five years, Chatterjee said.
Hit by structural factors While the steel demand in developed markets has remained muted since the 2008 financial crisis, trading conditions in the UK and Europe have deteriorated more recently due to structural factors, including global oversupply of steel, a significant increase in imports, high manufacturing costs and weakness in domestic demand.
These factors are likely to continue and have a significant impact on the long-term competitive position of the UK operations in spite of several initiatives undertaken by the management and the workers in recent years, Chatterjee said.
Stock surges Tata Steel shares surged 6.75 per cent to close at ₹324.40 on the BSE on Wednesday.
PTI adds: British Prime Minister David Cameron is likely to hold a meeting on Thursday to discuss the issue as his government faces pressure over the economy ahead of a crucial EU referendum.