Tata Steel's South-East Asia business equity stake sale plan derails

No approval from Hebei Government compels parties to scrap definitive agreements

Tata Steel's definitive agreements with China's HBIS Group Co. to divest equity stake in the former's south-east Asia business will not be extended.

"We have been informed by HBIS that they have not been able to procure the requisite approvals from the Hebei Government, one of the key conditions precedent for the proposed transaction. Both parties have, therefore, decided not to extend the definitive agreements," Tata Steel said in a press release today.

Tata Steel’s T S Global Holdings Pte., in January had executed definitive agreements with HBIS Group Co., to divest its equity stake in Tata Steel (Thailand) Public Company Ltd and NatSteel Holdings Pte. Ltd. to a company in which 70 percent equity shares was to be held by HBIS and the balance 30 percent by T S Global Holdings.

T S Global Holdings Pte Ltd is a fully-owned subsidiary of Tata Steel.

The stake sale was for a cash consideration of $327 million and also included Tata Steel's operations in Vietnam.

With definitive agreement not to be extended, Tata Steel said it will immediately begin engagement with other investors in continuation of its strategy to find a partner for the South-East Asian business.

This is not the first time that Tata Steel’s divestment plan has backfired. In June 2018, Tata Steel and ThyssenKrupp had signed definitive agreements to combine their steel businesses in Europe to create a 50-50 European joint venture company.  

However, the proposed partnership with ThyssenKrupp collapsed earlier this year as European Commission raised concerns that the proposed deal between the two steel majors may reduce competition in the supply of various high-end steels.

Tata Steel, the country’s oldest steel producer has been making efforts to keep its focus on growing domestic steel market and hence the curtailment of operations in the global market was keeping the domestic strategy in mind.

In India, Tata Steel has been one of the aggressive bidders for insolvent assets as it looks to grow capacity in the country to be part of the overall 300-million tonne production target set for the industry for 2030.

Meanwhile, brokerages were of the view that finding a new partner for the South-East Asian business in current market conditions would mean selling the asset at a very low price.

“Tata Steel may have to sell the stake at 50 per cent discount, given the current market,” said a Mumbai-based analyst on condition of anonymity.

However, another option Tata Steel could exercise is to wait for market conditions to improve and then divest the assets which would mean a wait period of close to two years.

• Stake sale was planned at cash consideration of $327 million

• Tata Steel held 100 per cent stake in NatSteel, 67 per cent stake in Tata Steel Thailand

• Tata Steel planned to be in partnership for atleast 3 years

• Tata Steel may have to sell asset at 50 per cent discount in current market, say analysts