Friday, July 25, 2014

News: Tata Steel starts to tackle debts

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Tata Steel, the Indian-owned steelmaker that operates sites in Rotherham and Sheffield, has issued bonds to overseas investors in a bid to refinance debt of $7 billion.

Just over 2,000 people are employed at Tata Steel in South Yorkshire and sites including Stocksbridge and Aldwarke specialise in the production of high grade and special steels for the world's leading companies in markets ranging from automotive to aerospace, civil engineering to component manufacturing, energy industries to consumer goods. Narrow strip is produced at Brinsworth.

$1.5 billion has been raised by the Mumbai group with new bonds listed on the Frankfurt Stock Exchange as it tackles the existing debt of Tata Steel Europe, the operations it bought in 2007 when it was know as Corus.

In 2013, Tata Steel announced a $1.6 billion writedown on its assets, mainly on the European operations that have suffered from a market slowdown and rising raw material prices since Corus joined the Tata Steel family in a $10 billion transaction. A write down reduces the book value of an asset if it is overstated compared to current market values.

Tata Steel said in its annual report for 2014: "The Company in 2007, funded its acquisition of Corus in significant part by debt, raised both in India and overseas, as a result of which the Company has sizeable repayment and debt servicing obligations on an ongoing basis.

"Recent depressed market conditions (especially in Europe) have meant that the cash generation across the Tata Steel Group has been constrained, thereby increasing the risk inherent in the capital structure of the business.

"Tata Steel Group continues to opportunistically raise capital and rebalance its capital structure, taking into account market conditions and available liquidity."

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Koushik Chatterjee, group executive director (Finance and Corporate) at Tata, said: "This is Tata Steel’s debut US Dollar bond issuance and forms part of the Company's long term financing strategy to raise capital internationally. The proceeds of the above fund raising will be deployed as per the strategic plan of the Company including off shore investment.

"It was heartening to get such an enormous response from high quality investors across Asia, Europe and Middle East. The successful bond issue enables the Company to diversify the investor base, lengthen maturity profile and optimise the financing and capital structure."

Concerns continue over whether Tata Steel plans to sell off any European assets to help reduce the debt further. Europe is seen as a relatively high cost area and where demand growth for steel products is much lower than in developing parts of the world.

The steelmaker began undertaking a number of initiatives, including a strategic review of its asset portfolio, as it reported record losses for the 2013.

A turnaround in 2014 saw Tata Steel increase production, sales and overall performance, for its important European operations. In Europe, turnover for the year to March 31 was £8.4 billion versus £7.8 billion in the previous year, despite Tata stating that average market conditions were worse than in the previous year.

EBITDA (earnings before tax) for its European operations in the 2014 financial year was at £301m, quadrupling from the £76m reported in the same period last year. If depreciation and amortisation are taken into account, earnings drop to a loss of £16m compared to the loss of £283m in 2013.

Since undergoing massive restructures, which included over 1,000 job losses, the South Yorkshire sites have been benefiting from significant investment and a focus on a high-quality portfolio programme, with Tata launching 30 new products and increasing sales of new products by more than 75%, a record for the ongoing New Product Development programme.

Production at Tata's Rotherham site at Aldwarke is back up to 0.7 million tonnes, close to its capacity of 0.8 million tonnes.

One area of uncertainty however is the long term future of Tata Steel's Research & Development site in Rotherham. The Swinden Technology Centre (STC) at Moorgate mainly focuses on product research and applications research for the transport, building and construction sectors but Tata admitted earlier this year that it was considering where research will continue over the longer term with a possible relocation from Rotherham to a different UK site in the future.

Tata Steel website

Images: Tata Steel

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