Tata Steel UK's long products biz sale credit positive:Moody's

Tata Steel UK Ltd's signing of an agreement to sell its European long products business to UK-based investment firm Greybull Capital is credit positive for its parent, Tata Steel, Moody's Investor Service said today.
However, the agreement will not immediately affect ratings for Tata Steel and Tata Steel UK Holdings, based on the information so far on the amount of liabilities and debt to be transferred, Moody's said in a note.
"The sale of the long products business amid a challenging economic environment is credit positive, although a timely and seamless divestment of the UK business is a key rating sensitivity," it said.

Tata Steel UK yesterday announced the signing of an agreement to sell its European long products businesses for a nominal consideration, in exchange for Greybull taking on the entire long products business, including assets and relevant liabilities, and securing an appropriate funding package for the divested business.
"Even though the sale is for a nominal consideration, it is credit positive for Tata Steel UK Holdings because it would dispose a part of TSUK Holdings' loss-making operations, and reduce the drag on the company's profitability," it said.
Tata Steel's European business reported EBITDA losses for the nine months ending December 2015.

The sale of the long products business will encompass the Scunthorpe steel plant, two beam mills in Teeside, an engineering workshop in Workington, a design consultancy in York, a mill in northern France and associated distribution facilities.

Conditions precedent to the divestment include the transfer of contracts, obtaining of necessary government approvals and completion of financing arrangements.
Tata Steel this month announced its intention to restructure/divest its entire UK business.
With the sale of the long products business to Greybull, the balance of its UK business comprises primarily of its operations at Port Talbot, which manufacture slabs, hot rolled coils, cold rolled coils and galvanized coils.

"While the sale of the long products business to Greybull and the company's intention to restructure/divest the UK business is credit positive, the extent of the impact on TSUK Holdings' corporate family rating will depend on proceeds-if any-to be received on a potential divestment of its Port Talbot operations," Moody's said.
It would also depend on a reduction in operating expenses following the divestment, one-off restructuring expenses, if any, any additional pension-related costs to be incurred by TSUK Holdings, TSUK Holdings' pro forma debt/capital structure and an improvement in TSUK Holdings' financial leverage.