Opinions

JV failure won’t impact Tata Steel’s India plans: Koushik Chatterjee


Tata Steel and Thyssenkrupp said on Friday they have decided against going ahead with their planned joint venture in Europe since it is unlikely to get the European Commission’s regulatory approval. Tata Steel Group CFO Koushik Chatterjee spoke to ET about the impact of the stalled joint venture in Europe and on Tata Steel’s more profitable operations in India. Edited excerpts:

Is there a possibility of Tata Steel and Thyssenkrupp reworking the merger plan?

The construct of the proposed joint venture was premised on a strong industrial rationale that was good for the industry, customers, technology and climate change. In the past decade, the steel industry has faced significant challenges in Europe in terms of structural overcapacity, the maturity of demand and higher input costs. This merger would have made combined businesses more sustainable in long run. We are disappointed at the way this merger is being viewed from a competition regulation perspective. In an oversupplied market including imports, consolidation is a defensive strategy to make businesses more sustainable. Any further remedy would have impacted economic logic and would have had a severe knock-on effect on value chain feasibility of the combined entity. Hence, both parties were unable (not unwilling) to offer further concessions or remedies.

What will be the impact on Indian operations?

The primary purpose of the European merger was to build a sustainable business for our European portfolio with a company with shared values and vision. The financial impact of the merger through de-consolidation on the debt would have been a consequential outcome. The European portfolio as a percentage of the overall capacity and earnings distribution has become much smaller than what it used to be and given the strength of Tata Steel India, I feel that Tata Steel’s investment and credit thesis remains as strong as before and I do not see any impact on Tata Steel’s India strategic plans on either de-leveraging the balance sheet or future growth.

Will you look at asset sales in Europe? There are some who think there is no Plan B.

There are two parts to the answer. The first being the priority here and now, which is to ensure that the European business has strong and stable operations and is able to meet all its cash flow needs… Enhancing the competitiveness in both the Netherlands and the UK to strengthen the performance profile of the business is the most critical focus area. The second part is to pursue the strategy which will give us a similar outcome as the joint venture. It is not appropriate to say we don’t have an alternative plan because as a company we continuously look at strategic risks, scenarios and mitigation plans. The options are currently being evaluated and we will develop it and work towards a sustainable solution for the long term. We will evaluate all options and scenarios and identify the best fit for purpose solution which we can talk about in the near future.

How would Tata Steel balance debt management priorities with growth strategy?

In the last six to eight months, post the peak debt levels subsequent to Bhushan Steel acquisition, Tata Steel has done significant work on its deleveraging plans at the gross debt level. Our gross debt reduced by ?17,864 crore in the second half of the financial year 2018-19. Our focus is on enhancing internal cash generation through the continued pursuit of operational excellence to drive efficiency and productivity. Our aim is to enable growth without increasing leverage.

On the India business…

Last year, our biggest strategic moves included acquisition of Bhushan Steel (now Tata Steel BSL), acquisition of the steel business of Usha Martin and undertaking the ?23,500 crore investment for expansion of Tata Steel in Kalinganagar. The integration of Tata Steel BSL is going well as planned and we have recently announced the merger of Tata Steel BSL, which will also help us consolidate and synergise further. Expansion of Kalinganagar has been progressing as per plan and we propose to start the commissioning of the cold rolling mill in financial year 2020-21.





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