Tata Steel’s solution for Europe assets may lie outside the region

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Tata Steel Ltd, which has lost more than $700 million in market value after shelving merger plans with Thyssenkrupp AG, expects a tie-up with a non-European partner to clear the region’s regulatory hurdles more easily.

“It is obvious that in Europe we will have limited options because Thyssenkrupp was the best option in many ways,” chief executive officer T.V. Narendran said in an interview.

“So when you look at the possibilities, obviously somebody from outside Europe who is interested in Europe will make it easier for us from the competition commission point of view.”

On May 10, Tata Steel and the German conglomerate decided to call off their proposed steel JV, expecting the deal to be rejected by the European Commission (EC) over “continuing concerns”.

A company from outside Europe would reduce some of the concerns the European Commission had about the Thyssenkrupp merger relating to the two mills’ market share in the automotive and packaging segment, Narendran said, adding it was too early to comment on potential partners and the options being explored.

The collapse of Tata Steel’s planned joint venture with Thyssenkrupp has brought the Indian group’s more than $13 billion of debt in focus. The deal would have transferred some of the debt to the joint venture, allowing the Mumbai-based company to sharpen its focus on ramping up its profitable Indian business.

Tata Steel and ThyssenKrupp had signed definitive agreements in June 2018 to combine their steel businesses in Europe to create a 50-50 pan European joint venture company which could have formed the continent’s second-largest steel company after Lakshmi Mittal’s ArcelorMittal.

“The journey of de-leveraging continues and creating structurally strong enterprise continues, (however) the JV could have made it a bit faster in terms of reducing our debt,” Narendran said.

He further noted that in Europe, the main players for the auto industry are ArcelorMittal and Thyssenkrupp and because of this, the EC got adverse feedback from the automobile majors about the merger, as instead of three strong suppliers the automobile majors would have had two strong suppliers.

As part of its pivot toward the domestic market, Tata has shed many of its global units, with the Southeast Asia operations set to be the latest to leave its fold pending a sale to China’s HBIS Group Co.

Tata, which operates the iconic blast furnace at Port Talbot in the UK and another big plant in the Netherlands, has been closing and selling plants in the UK since the 2008 financial crisis to make the business more profitable.

“The first objective is to make sure the European business is cash positive so that it is not a drain on the cash flows in India,” Narendran said Tuesday at the company’s headquarters in Mumbai. Tata, which has about 21,000 employees in Europe with a capacity of 10 million tons of steel annually, will continue to operate its facilities as normal despite the idling of some capacities by major players in the region due to a weak market, he said.

Shares of the company fell 9.6% in the past three trading sessions since the breakdown of the Thyssenkrupp deal was announced. They pared some losses to trade 1.7% higher at 477.50 rupees at 9:41am in Mumbai on Wednesday.

“This year we want to run a stable operation” in Europe after a challenging time last year, Narendran said.

As for jobs, for now “any reduction will be if we sell any of our businesses,” he said.

bloomberg

PTI contributed to this story.

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