Tata Steel plans to restructure Corus' Europe operations

Plants in Spain, France and the Netherlands under review.

The global slump in steel prices and demand has prompted Tata Steel to consider restructuring the continental European operations of Corus, the Anglo-Dutch steel major it acquired in 2007 for $12 billion.

The focus of the review is Corus’ plants in Spain, France and the Netherlands, which could include selling these units if the need arises. Tata Steel's consolidated profits fell 48 per cent to Rs 732 crore in the quarter ended December, after Corus faced a drop in sales (the company does not give Corus' results separately).

Corus, which has an annual production capacity of 20 million tonnes, has plants in the UK, the Netherlands, Germany, France and Belgium.

This week, the company suffered a setback after an Italian buyer, Marcegaglia, backed out from a deal to buy its Teesside plant in northern England, saying the $480 million deal would financially stretch the company.

An e-mail sent to the company spokesperson on Wednesday did not elicit a response.

To limit losses, Corus has already decided to divest in downstream businesses. Briand Investments, an affiliate of UK-based investment group Klesch, had agreed to acquire Corus' aluminium smelters at Voerde in Germany and Delfzijl in the Netherlands.

The company has also closed the three service centres in the UK. As part of restructuring its building systems division, it has closed units in south Wales and relocated the facilities to Shotton in north-east England.

Tata Steel, which has about $9 billion debt in its books, is also looking to roll over the $4 billion of debt it raised to buy Corus. Sources said the company planned to extend the loan repayment period for three years to help Corus weather the downturn. Tata Steel has to repay $795 million in 2009-10 and $1.3 billion in 2010-11; however, the company is free from repayment until December 2009.

“The company may use part its $1.9 billion reserves for the loan repayment, but that will adversely affect its expansion plans in India. The company requires $1.2 billion for its capital expenditure during this fiscal,” said a Mumbai-based analyst.

Corus, the analyst added, has already cut 40 per cent of its production after the demand slump, so cash flows from Europe also will be lower. “The restricted cash flow will affect Corus' plans to acquire iron ore and coking coal mines for raw material security,” said a Mumbai-based analyst.

The Tata Steel and Corus managements have already gone through some top-level changes after Philippe Varin resigned as chief executive to head French car maker PSA Peugeot Citroen. Kirby Adams, former chief executive of BlueScope Steel in Australia, has succeeded Varin.