Tata plan to sell Britain unit deepens UK’s steel crisis

Bloomberg

Tata Steel Ltd., part of India’s biggest conglomerate, said a slump in global prices has forced it to consider selling its U.K. business, a decision that threatens to accelerate the demise of Britain’s steel industry.
Global oversupply, high manufacturing costs and rising steel exports mean trading conditions in the U.K. and Europe have “rapidly deteriorated,” Mumbai-based Tata Steel said in a statement. Tata Steel Europe’s board will “explore all options for portfolio restructuring,” including a potential divestment of the U.K. unit, the producer said.
Tata’s U.K. assets, once controlled by state-owned British Steel and bought for $12 billion a decade ago, include the giant Port Talbot works in South Wales. The risk of losing thousands of industrial jobs in an economically deprived region will put pressure on David Cameron’s government to ensure it remains a going concern.
The government wouldn’t rule out temporary state control as a way to ensure sufficient time for a buyer to be found, U.K. business minister, Anna Soubry, said in a BBC Radio interview.
”We are and have and continue to look at all options and I do mean all options,” Soubry said. We “want to see steel being made at Port Talbot/”
European mills are struggling to contend with a flood of cheap steel exports from China, which accounts for about half of global output, boosting competition and eroding profits worldwide. Tata Steel closed plants and cut jobs in the U.K. last year as China’s exports surged to an all-time high, while local producers contended with sinking domestic prices and a glut of material.
“It comes back to just how tough the steel market is,” Sydney-based Morningstar Inc. analyst Mathew Hodge said by phone. “Some of those guys through the acquisitions were leading the charge, but it’s cyclical and low margin and high capex. Aggressive consolidators can become unstuck.”
Tata Steel’s 2007 agreement to acquire Corus Group Plc, its largest ever acquisition, signaled an effort to boost Indian manufacturing and build global scale. A three-month takeover race saw Tata raise its offer by more than a third. The purchase followed the about $38 billion takeover of Arcelor SA a year earlier by Mittal Steel Co., founded by Indian billionaire Lakshmi Mittal.
A review of Tata’s U.K. strip products unit, centered on Port Talbot, concluded planned restructuring proposals were unaffordable, the producer said in the statement.
“It is vitally important that Tata is a responsible seller of its businesses and provides sufficient time to find new ownership.” ‘Roy Rickhuss, general secretary of the steelworkers’ U.K. union Community, said in a statement.
Tata Steel is continuing discussions with Greybull Capital LLP over a potential sale of its U.K. long products business and also holding talks with the U.K. government, it said. That agreement covers Scunthorpe steelworks in England as well as mills in Teesside and northern France.
The producer is seeking to pare debt by selling loss-making units in the U.K. The company announced 1,050 job cuts in the country in January, and last week reached an agreement to sell its Clydebridge and Dalzell plants in Scotland to the Scottish government, which will then sell them on to Liberty House, a private company.
Tata Steel, with a current market value of about $4.5 billion, has crude steel production capacity in the U.K. of about 11 million metric tons a year, according to its website.

Asset Impairments
“Given the severity of the funding requirement in the foreseeable future, the Tata Steel Europe board will be advised to evaluate and implement the most feasible option in a time bound manner,” the producer said in its statement dated Tuesday, March 29. The U.K. business has suffered asset impairments of 2 billion pounds ($2.9 billion) in the past five years, it said.
In February, Tata Steel reported a fiscal third-quarter loss of 21.3 billion rupees ($320 million), versus a profit of 1.57 billion rupees a year earlier, as rising imports pressured prices. Global oversupply and an increase in exports to Europe are factors that are likely to continue into the future and have significantly impacted the long-term competitive position of the U.K. operations, Tata Steel said in its statement.