Tata Steel sells Rs 2,500-cr stake in Tata Motors

Out of the total 5.54% it held in Tata Motors, it would be selling 1.33% each to Tata Sons & institutional investors

Tata Steel’s decisions to exit non-core assets may not help it garner large sums to lower its debt burden. However, it certainly brings some respite to one of the world’s top-10 heavily indebted companies in the steel industry, given the prevailing challenging business environment, analysts say.

On Friday, Tata Steel, the country’s oldest steel producer, said it has accumulated about Rs 2,500 crore from a phased stake sale in group company Tata Motors. Out of the total 5.54 per cent stake Tata Steel held in Tata Motors, the steel producer sold1.33 per cent each to Tata Sons and institutional investors, it said via an exchange notification. “With this stake sale in Tata Motors, the steel company will be able to lower its debt by only three per cent, even if its uses the entire sum for debt reduction,” said Abhisar Jain, senior analyst with Centrum Brokerage.

Tata Steel’s stake in Tata Motors would be worth Rs 5,000-6,000 crore, said analysts. With consolidated net debt as high as Rs 70,452 crore as on March 31, Tata Steel has been consciously moving out of non-core assets to make up for the loss of cash flow it is facing due to lower Ebitda (earnings before interest, tax, depreciation and amortisation).

As per sectoral analysts, so far the company must have collected about Rs 12,000 crore, including the debt exposure from various stake sales like the one in Dhamra Port, Titan Company, Mozambique coal mine and the sale of the 25-acre land in Borivali, Mumbai.

“The sum collected via stake sales may not be a small amount, but it is not big enough when you see it from the lowering of debt perspective,” said Giriraj Daga, senior analyst with SKS Capital & Research. “The company’s current situation, however, is such that any bit of cash flow, be it from business earnings or sale of non-core asset, is welcomed,” he added.

Most analysts said that though the reasons behind the timing of a corporate decision cannot be gauged, sale of the stake in Tata Motors could have certainly been more beneficial six months ago, when shares were at about Rs 550. Currently, Tata Motors’ share price on the BSE is at Rs 328.40.

“We would not like to offer any comments on the share price. Whatever we have done we have informed it through the disclosure and that is it,” Koushik Chatterjee, group executive director (finance and corporate) told Business Standard. But not all attempts of Tata Steel to bring in cash to reduce debt via sale of non-core and loss-making assets have been successful. Last month, the company informed of its talks with Switzerland-based Klesch Group for sale of its long-products Europe business being called off.

Tata Steel had been in talks with Klesch following the signing of a deal in October 2014. Tata Steel was looking to sell its long-products division as the unit had been facing severe challenges amid rising imports from China and uncompetitive energy prices overall across the steel industry in UK. In the year ended March, Tata Steel reported a consolidated loss of Rs 3,955 crore against a profit of Rs 3,663 crore in the corresponding period last year, as realisations dropped, operating profit almost halved and interest outgo continued to rise.

Court nod to merger

Tata Steel on Friday said the Bombay High Court had approved the scheme of merger between the steel producer and Tata Metaliks and Tata Metaliks DI Pipes and their respective shareholders and creditors. In a BSE notification, the company said a certified true copy of the order from Bombay High Court is awaited. The merger scheme is still pending before the Calcutta High Court and the same will be effective only upon sanction by this court.  Shares of Tata Steel were up 0.43 per cent at Rs 231.20 on the BSE.