The struggling UK asset of Tata Steel, which is up for sale, got a glimmer of hope on Wednesday, with Stuart Wilkie, Managing Director, Tata Strip Products UK, proposing to join hands with financial bidders to acquire the Port Talbot plant.
Company sources confirmed that workers were interested in tying up with potential financial investors and taking over the plant. The Tata Group has set May 28 as the deadline to find buyers.
Wilkie was the architect of a plan for the Port Talbot plant’s revival, which was rejected by the Tata Steel board on the ground that it requires long-term capital commitment.
That rescue plan proposal required theTatas to commit to a further investment of £100 million; it envisaged a halving of the annual loss of £200 million with improvement in operational efficiency, and cost savings of £350 million, partly achieved through job cuts. The UK government, which had come under severe criticism following the prospect of closure of the Port Talbot plant, may extend financial support by taking over the company’s debt, said sources. Tata Steel has long-term debt of €3 billion across operations in Europe.
Tata Steel started the process of divestment earlier this week and reached out to 190 potential financial industrial investors. It also appointed Bimlendra Jha, who successfully negotiated with Greybull Capital to sell the long products division, as Chief Executive Officer of Tata Steel UK.
G Chokkalingam, Managing Director, Equinomics Research and Advisory, said that though the pitch by Port Talbot workers to take over the plant’s operations is a welcome relief for employees, it requires lot of support from their government and from Tata Steel.
“In 2005, Tata Tea sold its Munnar tea gardens to workers’ union when tea prices in India plunged to ₹40 a kg and the cost of production was ₹50 a kg. The turnaround plan worked then because it had the support of both the government and the seller and did not involve sourcing raw material,” he said.
Many woes In the case of Tata Steel UK, he added, there are many problems such as sourcing raw material, high labour cost and weak demand. And to top it all, the constant dumping of steel by China, which accounts for half of the world’s steel production, is a major threat, he said.
Deven Choksey, Managing Director, KR Choksey Shares and Securities, said the workers’ bid may work operationally, but financially there are many difficulties.
The company has to overcome challenges such as sourcing raw material efficiently. Energy and labour costs are also high; there is the threat of cheap imports; and demand is weak, he said.