Tata Steel, the country's largest steel producer, has signed an agreement to sell the loss-making 4.5-million tonne (mt) long-product Scunthorpe steel plant in Britain to UK-based investment firm Greybull Capital for a nominal consideration, with the latter taking assets and relevant liabilities.The deal is expected to be completed within eight weeks, subject to certain conditions being met, including the transfer of contracts, certain government approvals and the satisfactory completion of financing arrangements, Tata Steel, and Greybull Capital said in separate statements.
To be renamed British Steel, the plant will continue to be run by the existing management and implement the plan they have drawn up to return the company to profitability, Greybull said."As an agreement to reset the cost base of the business has been reached with key suppliers and importantly, trade unions, we believe these vital changes will make British Steel competitive," said the company.
Tata Steel had been struggling to sell this long-product division for some time. Its first attempt to sell to Germany's Klesh Group failed in August last year. The due-diligence with the Klesh Group was carried out almost for a year before Greybull expressed interest in December 2015.The long-product division makes rail tracks and its products find wide application in the construction segment mainly in the making of bridges, towers, and highways.Brokerages said the move is positive for Tata Steel as it would arrest the cash burn via CapEx and eliminate Ebitda (earnings before interest, taxes, depreciation and amortisation) loss from its unit in its books."The cash burn will surely reduce but what liability will get transferred to Greybull remains to be seen.
The $12 billion acquisition had taken Tata Steel's total capacity to 23 mt from about seven mt.The UK government may decide to co-invest with a buyer to help save jobs at Tata Steel's loss-making Port Talbot steelworks in Wales.
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