 "Tata, Tata Steel")
The planned sale of Tata Steel’s European long products business to Greybull Capital will be credit-positive and it will help the Indian company lower cash burn, India Ratings has said.
However, the ratings agency expects the uncertain timelines associated with the sale of the overall loss-making UK steel business to delay the expected recovery in its credit profile. Maintenance capex in Europe would also decline significantly after the deal. The agency’s rating view on the company is on a consolidated basis and the rating approach factors in a one-notch uplift for its strong operational and strategic linkages with the Tata Group.
A complete exit from the UK can translate into positive earnings before interest, taxes, depreciation and amortisation for Tata Steel’s profits in the overseas operations and improve its long-term cash flow visibility, India Ratings said.
While the leverage levels are unlikely to see any direct reduction from the sale of the long products business, its Ebitda losses from Europe will be curtailed, which will facilitate a gradual de-leveraging of the company. During the nine months ended December 31, 2015, Tata Steel’s European operations reported an Ebitda loss of Rs 339 crore, largely on account of its loss-making UK operations.
The UK assets have a combined steelmaking capacity of 10.2 million tonnes (mt) distributed across Port Talbot (blast furnace, flat products), Scunthorpe (blast furnace, long products) and Rotherham (electric arc furnace) plants. The sale and purchase agreement Tata Steel has signed covers 4.5 mt long steel products facility at Scunthorpe and other associated long products facilities in the UK. Within Tata Steel’s portfolio of European assets, these facilities were the least profitable, and, hence, the divestment of these is a positive.
The European region, which includes the UK and the Netherlands, accounts for 52 per cent of Tata Steel’s total revenues in FY15.
