 "Tata Steel sells Scunthorpe steel plant to Greybull Capital for nominal amount")
Tata Steel, the country’s largest steel producer, has signed an agreement to sell the loss-making 4.5-million tonne (mt) long-product Scunthorpe steel plant in Britain to UK-based investment firm Greybull Capital for a nominal consideration, with the latter taking assets and relevant liabilities.
The deal is expected to be completed within eight weeks, subject to certain conditions being met, including transfer of contracts, certain government approvals and the satisfactory completion of financing arrangements, Tata Steel and Greybull Capital said in separate statements.
As part of the deal, Greybull is arranging £400 million investment and financing package for its new business and will approach banks and shareholders to fund this working capital and future investments at the plant, it said.
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To be renamed British Steel, the plant will continue to be run by the existing management and implement the plan they have drawn up to return the company to profitability, Greybull said.
“As agreement to reset the cost base of the business has been reached with key suppliers and importantly, trade unions, we believe these vital changes will make British Steel competitive,” said the company.
Meanwhile, the search for a permanent chief executive officer (CEO) has started and an appointment will be made in due course, said Greybull.
The plant employs 4,800 people with about 4,400 in the UK and the rest in France.
“The signing of the deal has taken place at about 11 am London time and we trade unions welcome this news,” Harish Patel, national officer (metals and foundary) of Unite told Business Standard.
Tata Steel had been struggling to sell this long-product division for some time. Its first attempt to sell to Germany's Klesh Group failed in August last year. The due-diligence with the Klesh Group was carried out almost for a year before Greybull expressed interest in December 2015.
The long-product division makes rail tracks and its products find wide application in the construction segment mainly in the making of bridges, towers and highways.
Brokerages said the move is positive for Tata Steel as it would arrest the cash burn via capex and eliminate Ebitda (earnings before interest, taxes, depreciation and ammortisation) loss from its unit in its books.
“The cash burn will surely reduce but what liability will get transferred to Greybull remains to be seen. The Ebitda loss and capex will be off Tata Steel's books," said Abhisar Jain, senior analyst with Centrum Brokerage.
Tata Steel officials were not immediately available for comment. Calls made to the company went unanswered.
Pension liability is one of the biggest issues at the the company’s European operations and Tata Steel has given no clarity on the same even in its release.
“Given the losses this plant was making, selling the unit for a nominal amount could mean an amount as small as £25-50 million,” said an analyst with a local brokerage on condition of anonymity.
Apart from the Scunthorpe steel plant, Tata Steel has also put its 5.5 mt (excluding Scunthorpe steel plant) UK-business for sale as it intends to lower its cash drain, which has been eating into its margins significantly.
Separately, the company has revealed the appointment of advisors for the sale process of its UK business. It has engaged the services of KPMG for the sale process of Tata Steel UK, while Slaughter and May will be legal advisors, it said.
It is the intention of Tata Steel Europe to run a thorough, but expedited sale process by reaching out to a wide universe of potential investors globally. The formal process began on Monday with the despatch of the Summary Information Memorandum to potential investors, it said.
KPMG and Slaughter and May had also advised Tata Steel UK on the successful divestment process of Longs Steel UK, a subsidiary.
With Tata Steel's European operations getting sold-off part by part, what would remain with the company is the 6.5-7 mt of Netherlands operations which is currently Ebitda positive for the company. Clearly, Tata Steel's dream to be among the top producers in the world is in shambles. Its acquisition of Corus in 2007 had positioned it as the fifth largest steel producer in the world, making it the largest acquisition by an Indian company and second largest in the industry after Mittal Steel's acquisition of Arcelor. The $12 billion acquisition had taken Tata Steel's total capacity to 23 mt from about seven mt.
The UK government may decide to co-invest with a buyer to help save jobs at Tata Steel's loss-making Port Talbot steelworks in Wales, UK business secretary Sajid Javid said on Monday.
"I've been in contact with potential buyers, making clear that the government stands ready to help. This includes looking at the possibility of co-investing with a buyer on commercial terms," Javid told the House of Commons.
TATA STEEL UK LONG-PRODUCT DIVISION
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Talks with Germany’s Klesh Group failed in August 2015
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UK-based investment firm Greybull Capital signed letter of intent with Tata Steel in December 2015
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Tata Steel sells unit to Greybull Capital for nominal amount in April
- Deal expected to complete within eight weeks
