Light at the end of the tunnel for Tata Steel?

tata steel

Struggling steel giant Tata Steel may have found its knight in the shining armour as the British government signalled its intention of buying as much as one-fourth of the company’s loss-making UK business, smoothening the process of the steel maker’s exit from the country.

The British government which is under extreme pressure to save thousands of steel jobs which have been put at risk due to Tata Steel’s impending UK exit has said that it will also offer financing support to the potential buyers of the company’s UK assets in the form of “hundreds of millions of pounds”.

The financial support package is expected to comprise mainly of debt financing and will be suited to the buyer’s strategy and financing needs, UK business secretary Sajid Javid said.

Even as the UK government takes up a minority equity stake of upto 25% in Tata Steel UK, it won’t “acquire a material element of control over the business”.

Financing commitment by Britain’s government would certainly make it easier and probably faster for Tata Steel to find a credible buyer for its UK business which has been hit by an asset impairment charge of nearly USD 3 billion over the past five years.

Tata Steel is estimated to be losing to the tune of 1 million pounds per day in UK as weak steel prices amidst an industry downturn, high costs and a flood of cheap Chinese imports, take heavy toll on the flagship company of the USD 100 billion Tata Group.

Tata Steel has three plants in UK including Port Talbot, Rotherham and Scunthorpe, having a combined steel production capacity of 11 million ton per annum. While the one at Scunthorpe was sold to Greybull Capital for a nominal £1, reports emerged that senior management of its Port Talbot operations is exploring the option of a management buyout.

Tata Steel is desperate for a quick exit from the UK as it aims to cut losses and debt, streamline operations and focus more on India amidst a global slowdown, that may help revive profitability.

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