Lessons Tata Steel Learnt From Its Corus Acquisition, Or Not

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The finalisation of the joint venture with Thyssenkrup AG marks the end of a long, painful chapter in Tata Steel Ltd.’s contemporary history. Twelve years after it made the ambitious acquisition the company acknowledges it bet on the wrong market, at the wrong time.

“If you have to choose between a growing and mature market, you would pick a growing market. You would pick a market where you have been operating for 100 years and have the strongest equity.”

That’s what TV Narendran, Tata Steel managing director and chief executive officer said to BloombergQuint, when asked what he’d do if confronted with a Corus-like acquisition opportunity today.

Since 2006 when Tata Steel paid over $12 billion for London-based Corus Group Plc, it has reduced the firm’s steel manufacturing capacity from 18 million tonne per annum to 10 mtpa. Now it has further cut its European exposure by combining the business with Thyssenkrupp. Tata Steel will transfer $2.9 billion in debt to the 50:50 joint venture.

“I think we have created a sustainable enterprise in Europe while we have reduced the stake in the company from 100 percent to 50 percent, but we are 50 percent of a larger company, structurally stronger company which is able to sustain itself,” Narendran said.

Corus added over $6 billion in debt at Tata Steel and cost India’s largest private sector steel company its financial health and leadership in the home market. Competitor JSW Steel Ltd. stole a march over the Tata company expanding capacity to 18 mtpa versus Tata Steel’s 13 mtpa.

Tata now hopes to win back the number one spot with its almost complete acquisition of Bhushan Steel Ltd. (5.6 mtpa) and the potential purchase of Bhushan Power and Steel Ltd. (2.5 mtpa). But these new purchases mark the persistence of an old problem—debt.

Debt Going Out

  • Thyssenkrup JV: Rs 19,100 crore

Debt Coming In

  • Bhushan Steel: Rs 35,200 crore
  • Bhushan Power: Rs 25,000 crore

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