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Tata Steel: Steelmaker sells shares of Tata Motors to pare debt amid Europe woes
NEW DELHI (NewsRise) — Tata Steel is selling shares worth up to 25 billion rupees ($380 million) in group company Tata Motors, as India’s biggest producer of the alloy continues its strategy of selling non-core assets to pare debt.
Saddled with more than $12 billion of debt eight years after buying Anglo-Dutch Corus Group, the company has been forced to sell assets and slash jobs as steel demand in Europe slumped amid an economic slowdown. Indian steelmakers are also grappling with surging imports into Asia’s third-largest economy from China.
Tata Steel sold shares worth 12.5 billion rupees in Tata Motors to institutional investors through stock exchanges in Mumbai, it said in a statement to the BSE. It is also planning to sell shares worth the same amount in the automaker to group holding company Tata Sons around the current market price through “an off-market transaction.”
Shares in Tata Steel were largely unchanged at 228.85 rupees in Mumbai trading on Friday, while the benchmark S&P BSE Sensex rose 0.92%. The stock has shed nearly half its value since the start of the year, tracking weakness in metal stocks. Tata Motors fell as much as 4% to 324.50 rupees, following the stake sale. It recovered some losses in late trade.
Tata Steel held nearly 152 million shares, or 4.71%, of Tata Motors stock at the end of March. Tata Motors had 44.32 million shares, or 0.46%, of Tata Steel.
Under previous chairman Ratan Tata, India’s $109 billion Tata Group embarked on a global expansion spree through a series of high-profile acquisitions that included a $2.5 billion purchase of luxury automaker Jaguar Land Rover in 2008 and the near-$13 billion deal for steelmaker Corus.
Jaguar Land Rover is widely deemed as a success after Tata’s acquisition from Ford Motor, fueling sales growth at Tata Motors, India’s biggest truck manufacturer. However, Corus has not fared well, pressuring Tata Steel’s finances.
Tata Group’s new Chairman Cyrus Mistry, who was picked in 2011 to lead the coffee-to-cars conglomerate, has been scaling down the steelmaker’s European unit and seeking buyers for some of its assets. Anglo-American billionaire Gary Klesch in August dropped plans to buy Tata Steel’s Scunthorpe, U.K.-based long products business, dealing a blow to the Indian company.
As part of its strategy to sell non-core assets, Tata Steel sold shares in Tata Projects and two of its joint ventures in Europe during the first quarter. It raised about 10 billion rupees in the quarter by selling a part of its equity portfolio.
Asset sales helped the Mumbai-based company offset a 17% decline in sales in the first quarter. Net group income more than doubled to 7.63 billion rupees in the three months to June 30, as it registered a gain of 6.97 billion rupees from the sale of investments.
Blaming surging imports and a strong British pound, Tata Steel last month temporarily closed a part of its strip products plant in south Wales, a move that would potentially result in as many as 250 job cuts. Just a month earlier, it had axed 720 jobs in its Rotherham plant, saying it plans to focus on high-value sectors such as aerospace.
The large debt at steelmakers has put stress on Indian banks, prompting the government this week to impose a safeguard duty of 20% on certain steel products. The move followed China’s decision to allow its currency to weaken to boost its own exports.
The Indian steel industry has 2.8 trillion rupees of loans, and at least 60% of this may not be serviceable if steel prices don’t recover, according to a recent note by Bank of America. The safeguard duty is credit positive for Indian steel producers, Moody’s Investors Service said.
Tata Steel: Steelmaker sells shares of Tata Motors to pare debt amid Europe woes
