The Hindu Business Line : Double benefit for Tata Steel

TATA Steel's agreement to acquire the steel businesses of the Singapore-based NatSteel is aimed at putting its globalisation initiative in motion. If this acquisition goes through over the next 5-6 months, Tata Steel will stand to gain in two ways.

First of all, this will straightway help the company establish steel-manufacturing footprint across seven countries in Asia.

NatSteel and its regional subsidiaries focused on long products have about 3.3 million tonnes of steel rolling capacity across Singapore, China, Malaysia, Vietnam and Philippines and downstream capacities at Thailand.

In July, speaking to Business Line about Tata Steel's global aspirations and steel making from alternative locations, Mr B. Muthuraman, Managing Director, had said: "When we are thinking of alternative locations, which are part of the globalisation strategy, (it is) of making semi-finished steel in India and taking it to our own locations in China, Vietnam, Philippines or Thailand and so on, where the basic structure is a high-cost structure."

Secondly, this agreement is also expected to create investment opportunities for Tata Steel to foray into the Chinese and South East Asian geographies.

Mr Muthuraman had also said that steel has a "long value chain; each of the parts in the value chain has a value creation and cost incurrence. Where it is best done in the world is the place where to you need to put it."

Since Asia is expected to be a big engine for steel growth, Tata Steel will now be in a position to explore value-added opportunities in the higher end of the steel value chain in both long and flat products across these regions.

As the company's reserves and surplus stand at about Rs 4,200 crore for the year 2003-04, the acquisition of NatSteel Asia at an enterprise value of Rs 1,313 crore is likely to be comfortably covered through internal accruals.

Moreover, since its long-term debt equity ratio is at 0.95, Tata Steel should also have adequate leeway to raise funds through long-term borrowings for its expansion programme at Jamshedpur (of 2.4 million tonnes of steel capacity at an estimated cost of Rs 7,800 crore).

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