Tata Steel plans to make European operations sustainable on its own

After the collapse of its proposed partnership with ThyssenKrupp, Tata Steel does not plan to form a joint venture for the European operations in the near future.
 
It will, instead, try to make the European operations sustainable on its own. “As a management, we are not keen on missing out opportunities in India because we have to keep sending cash to Europe. We have told the (Europe) team that the best way for them to control their future is to be cash-positive,” T V Narendran, chief executive officer (CEO) and managing director (MD), told Business Standard.
 
For the most part since acquiring the Europe operation, Tata Steel’s business in India has been funding the former.
 
“Cost across the board, working capital requirement of €2 billion  per annum and annual capex cost of €300-400 million are the three areas where the team is looking to curtail spending,” said Narendran. The aim is to lower cost even if operating earnings are squeezed, he added.
 
Apart from the ThyssenKrupp deal not materialising, increase in raw material cost and the trade war between America and China will make the European operations difficult for the company.
 

“There is challenge in Europe, as the market is tough. It is not an easy journey but at the same time, our European portfolio has shrunk to assets which have best chances of survival,” said Narendran.
 
Tata Steel Europe's plant in the UK contributes 11 per cent to the company's total capacity; another at Ijmuiden in the Netherlands contributes 22 per cent, stated the 2018-19 annual report.
 
Since it acquired the erstwhile Corus, Tata Steel has taken several steps to lower its exposure to the loss-making operations in Europe. Total capacity was 24 million tonnes (mt) when it acquired Corus in 2007-08, of which 18 mt was in Europe. Today, with total capacity of 29 mt, Tata Steel’s Europe operations are only 10 mt.
 
“Also, at the time of acquisition, out of 18 mt Europe capacity, 11 mt was in the UK, which had the most problems. Today, out of 10 mt in Europe, only three mt is in the UK,” said Narendran.
 
The company recently appointed Henrik Adam chief executive officer and chief commercial officer of Tata Steel in Europe.
 
Tata Steel is trying to lighten its debt burden, most of which sits on the books of the Europe operation. As of end-March, gross debt was Rs 100,816 crore, said the annual report.
 
“We are looking to raise funds for refinancing,” said Narendran, while declining to give details.
 
According to reports, Tata Steel is raising up to $500 million (Rs 3,400 crore) through syndicated overseas loans. “We have a philosophy of raising money not when it is needed but when it is the right time,” Narendran added.
 
Tata Steel has been battling high debt issues since the time it acquired Corus. Global market conditions and macro economic headwinds have impacted the performance abroad.