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Ratan Tata in charge: New game plan for Tata Steel Europe

Tata Steel has signed agreements that will see the Canadian government pick up equity stake in an iron ore project to help supplies of the key raw material for Tatas’ European steel business.

Cyrus Mistry Exit Updated: Oct 28, 2016 12:45 IST
Ramsurya Mamidenna
One of the blast furnaces of the Tata Steel plant is seen at sunset in Port Talbot, South Wales.
One of the blast furnaces of the Tata Steel plant is seen at sunset in Port Talbot, South Wales.(Reuters)

Tata Steel will continue with its stated strategy of consolidating the European steel business and work toward making its pension liabilities in the UK affordable while changing course for the sale of one of its plants, a senior company official said on Friday.

“There has been a lot of noise recently on our European business. It is necessary to present the true picture to various stakeholders. We will continue with our European consolidation strategy and also with the talks for a possible joint venture with Thyssenkrupp AG,” group executive director (finance and corporate) Koushik Chatterjee told HT after a meeting with top fund houses. Tata Steel on Friday met with top brokerages and funds including HSBC, Credit Suisse, Morgan Stanley, JP Morgan, Deutsche Bank and others to reassure investors about the continuity in their plans.

There has been speculation about Tata Steel Europe following ousted chairman Cyrus Mistry’s mail to directors of Tata Sons that spoke about likely write-down of $10 billion by the company due to an erosion in the value of its assets.

A GBP 700 million deficit in the pension scheme of Tata Steel UK has been one of the major obstacles in the restructure of the business that includes a possible sale or a joint venture. The Tatas have been talking to UK government about a revamp in the structure of the pensions, although it is not clear on what the Tatas have offered.

In the meeting with fund houses in Mumbai, Tata Steel’s Chatterjee is reported to have said that the company has sought to shift to fixed defined contribution from defined benefit, to make it more affordable. This however could not be confirmed.

Tata Steel said it also plans to pursue a “separate process for the potential sale of South Yorkshire-based Speciality Steels business in the UK.” The sale process of this plant had been held up after the change in leadership at the Tata Group on Oct 24 when the Tata Sons board voted to replace Cyrus Mistry.

The company has also finalized agreements that will see the Canadian government pick up equity stake in an iron ore project in Canada that will ease supplies of the key raw material for Tatas’ European steel business.

“Tata Steel Europe will have to buy iron ore from this project, like any other buyer. Sale of iron ore to the European steel business will be done at arm’s length,” said Chatterjee.

Early Friday, Tata Steel Minerals Canada signed definitive agreements where the government of Quebec will invest Canadian$ 125 million as equity and Investment Quebec will lend Canadian$ 50 million as debt for the iron ore project.

The investment by the Quebec government will see it own 18% equity stake in Tata Steel Minerals Canada, that has mining operations in the Quebec-Newfoundland and Labrador peninsula.

Investors welcomed the agreement with shares of Tata Steel rising 1.5% on the BSE after the announcement.

Iron ore is the raw material from which steel is made. The erstwhile Corus, now Tata Steel Europe, did not have a continuous supply of iron ore that was one of the factors to push the European steel business into losses. Unlike Europe, Tata Steel in India has ownership of iron ore mines which has kept its production costs among the lowest in the world.