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Tata Steel confirms talks with Sweden's SSAB to sell Dutch unit

Proceeds from the sale will be used to lower the debt on Tata Steel's books

November 17, 2020 / 05:04 PM IST

Tata Steel has confirmed that it's in talks with Sweden's SSAB to sell its unit in the Netherlands, the flagship of its operations in Europe.

This is a fresh attempt from India's largest steelmaker to find a solution to its troubles in Europe, more than a year after a merger with Germany's thyssenkrupp was blocked by European Commission.

The company said it has "commenced discussions with the Supervisory Board and Board of Management of Tata Steel Netherlands and the process will move to the next stage including due diligence and stakeholders’ consultations." The Netherlands unit has an annual capacity of 7.5 million tonne and has 10,000 employees.

Proceeds from the sale will be used to lower the debt on the company's books. Tata Steel Europe has a debt of 1.7 billion Euros.

Simultaneously, the company has also begun the process of separating Tata Steel Netherlands and Tata Steel UK, and "will pursue separate strategic paths for the Netherlands and the UK business in the future", it said. The company has been in talks with the UK government for financial aid to shore up its operations in the country.

"There will be stages in this transaction, and will close it in six to nine months," Executive Director and CFO Koushik Chatterjee, said during an analyst call on November 13.

CEO and Managing Director TV Narendran added that the company is "not expecting competition commission issues" like in its earlier proposed merger with Germany's thyssenkrupp.

The merger with thyseenkrupp was blocked by the European Commission in 2019, and turned out to be a big setback for Tata Steel in its attempt to find a solution to the European puzzle. Since its 2006 acquisition of Corus, which was later renamed Tata Steel Europe, the operations have for most of the years incurred losses and were dependent on the Indian parent to stay afloat.

The Commission had said that the merged entity, which would have been the second largest in Europe after ArcelorMittal, would have hurt competition in some of the segments, including  packaging steel, auto-grade steel and electrical steel.

The company is now hoping that the deal with SSAB will have a better fate with the Commission. Narendran said that the merged entity, that of Tata  Steel Netherlands and SSAB, won't have a significant presence in packaging or auto steel.

SSAB is known for making steel that is used in making machinery and equipment that have application in mining, earth moving and construction segments.

What happens to Tata Steel UK?

The big question is now on the future of the UK operations, which have been the biggest drag on the company. Overall in Europe, about 70 to 80 percent of the EBITDA comes from the Dutch unit.

The UK operations, which churn out about 5 million tons of steel a year, have been a subject of much debate and consternation, as was again seen during the analyst call on Friday, as many analysts repeatedly asked about the future of the unit.

Narendran reiterated that the focus of the company is make the UK operations self-sustainable and not dependent on cash injections from the Indian parent. "In the last six months, which have been very challenging, the UK operations have not needed help," he said.

Moneycontrol News
first published: Nov 13, 2020 07:50 pm