‘Going forward, we will have to be a lean and competitive organisation’

Tata Steel is looking to sell its entire loss-making business in Britain. The company’s board met on Tuesday evening to decide on the future course of action for the firm’s embattled operations in the UK.

In an interview to Bloomberg TV India, Tata Group Executive Director Koushik Chatterjee said the group will now look for buyers as also any other restructuring options.

After a marathon board meeting, the Tata Group has decided to sell off the loss-making steel unit in Britain. The market has cheered the move. What made you finally take this decision?

In the global steel industry, given the over-capacity issues and given how trade movements are happening across borders, there is a kind of existential crisis.

There are countries with open borders, which are more vulnerable as compared to some others. If you look at the macro situation as far as the UK is concerned, the demand profile has been muted ever since the global financial crisis happened.

These are factors which are unlikely to change. The currency is very volatile and it is high-cost geography when compared to many of the emerging market geographies, and so on. We have been, as a management team, supporting the UK operations for the past nine years and we have put in a lot of financial support and a lot of resources. There has been a lot of sufferance in terms of asset impairment and so on. So when you look at another transformation plan, the board of Tata Steel actually looked at all the assumptions —stressed test scenario, risk profile, doability and entire gamut of the plan — and then took the view that this plan is not something that you can support or afford because it has got capital commitments not only in the next couple of years but over a long term, which could be very significant.

Do you think there could not have been a better solution than putting this asset on sale?

If you look at it from the auction point of view, the Tata Steel Europe board has been advised to look at all the options to restructure including a potential sale in whole or in parts, and take a view and implement the same.

What gives you confidence that you will get a buyer — because it is a tough environment right now?

It is not a question of confidence but a question of options and implementing those options. When we went for the sale process of the long products business, the situation was similar.

But we had our process. We found there are potential investors with different risk profiles and different operating thoughts that can show interest and we are progressing in the transaction in the long products business. There are challenges as in any M&A transaction, which need to be stitched. Which is what we are progressing. And we are very hopeful that it will finally happen but there is always a probability.

What is the time line that you are looking at?

I think I would not get into the explicitness of the time line because it is less than 24 hours since the board approved this approach. But it will be done in a time-bound manner.

Internally you must be hoping to complete by a time frame and hence resolve the problem…

As I said, give us a little bit of more time to understand how we will run the process. We will have to get an assessment done by our advisory team and once that happens, it will be a credible process.

And it needs to be a credible process. It needs to look at all options in terms of the buyers’ universe — what kind of buyers will be interested. And any other restructuring options or portfolio options that the Tata Steel Europe board wants to evaluate also has to be seen.

So all of these will take some time and we hope that we will be able to put a definitiveness to all this in the coming weeks and months.

Let us assume that this goes through and you will find a buyer. How will it finally impact your balance sheet? What is your own projection when you say that you will be able to sell this off, dispose it off or divest partly or fully? What’s your own assessment of the positives that you will get from this sell-off?

I think the fundamental part here is in terms of future exposure. So if you are going to look at the priorities of Tata Steel with a new plant in Kalinganagar, which needs to be ramped up, the restructuring and other initiatives in Jamshedpur…we look at it as a portfolio.

We have given the best and more than the best to turn it around and support the business. And at a point in time when it becomes inherently much more risky than what Tata Steel can absorb or take, then you come to that view. It is not a valuation exercise or a valuation game because most of the assets are impaired. So I think one has to look at it with the future risk profile perspective. And given the risk profile at this point of time in the UK business, going forward, we will potentially be able to contain our risk exposure and move forward in terms of our long-term journey.

The other big challenge that you have in front of you is the unions or the number of jobs that are at risk on account of this sell-off plan. How do you address that problem because we know that unions have been engaging with you and trying to give you a plan and options, which was rejected by the company’s board?

I think the unions and the management team and the company have had a very long and good relationship. It is important to recognise their support in the Scunthorpe transaction because they understood that a new investor can make it perhaps more sustainable. And therefore we hope that the similar reaction will continue as far as Port Talbot is concerned. It is in some ways a very difficult decision from even our part because we work holistically and not unilaterally. And it is important that we carry everybody — the government and the union — to what is best achievable in the current circumstances and that is the best any business enterprise can do.

But what’s next? Are you going to engage with them again in a dialogue and try and talk to them because they seemed pretty disappointed after this announcement?

It is natural to be disappointed. And I think we are disappointed as well because of the fact that we wanted to make it more sustainable than what has been achieved. We are in constant dialogue and they were here past midnight along with me. So I think it is an important continuation of our conversation and we will try to achieve what is best achievable under these circumstances.

What is the current book value of the assets that you have put up for sale and divestment?

I would say a large part of this is actually impaired.

Coming to the point that you made about Indian domestic demand and consumption which you are hopeful is going to pick up going ahead. How is the Kalinganagar expansion coming along and are you able to stick to the targets?

The project phase is largely completed and I think each of the facilities is getting into a commission stage and over the next weeks and potentially months in 2016-17 we will be in operating phase.

What about the South-East Asian geography?

South-East Asia has been also in a restructuring phase and we are doing the same as far as Singapore is concerned and positive results are being shown. Going forward we will have to be a lean and competitive organisation and keep doing the right things from the process and product point of view.

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