Tata Steel to sell non-core assets to cut debt

Tata Steel is making an all-out effort to reduce its debt that stood at $9.8 billion as of September 30 after the aggressive acquisition of European giant Corus in 2006. It plans to raise capital, use cash reserves and sell non-core portfolios for the purpose.

“All these may happen in 12 months,” said Koushik Chatterjee, chief financial officer, Tata Steel Group. As of September 30, the company had cash and cash equivalents worth $3 billion. Tata Steel expects to cut gross debt level by $2 billion in 12 months, he said adding, “We will prepay $180 million, taken for our European operations, by March-end.”

The company does not have any material repayment requirements over the next 12-15 months and will continue to seek opportunities to reduce financing costs, he said.
Last week, the company said the board has approved an exchange offer of new
foreign currency convertible bonds for all or part of its existing $875 million convertible
alternative reference securities due for maturity in 2012. The exchange offer has been made to reduce the debt cost and extend the tenure of long-term debts, it said.

In a separate release, the company had also mentioned it has accepted foreign exchange convertible bonds worth $493 mln for an exchange programme. Meanwhile, Tata Steel posted a second consecutive consolidated quarterly net loss. It reported a net loss of Rs 2,720 crore for the second quarter ended September 30, as against a net loss of Rs 2,238 crore for the first quarter ended June 30. It had posted a profit of Rs 4,704 crore for the second quarter last year.

Tata Steel has been trying to cut costs by rationalising operations in Europe and also reworking interest costs. It took one-off charges, primarily related to restructuring in Europe, of Rs 910 crore in the second quarter. Teesside Cast Products hurt second-quarter earnings before interest, tax, depreciation and amortisation (EBITDA) by about Rs 800 crore. “TCP has reported an EBITDA loss of $220 million and a cash outflow of $140 million in the first half of this year,” Kirby Adams, managing director and CEO, Tata Steel Europe, said, adding that Tata was prepared to mothball the plant if necessary.

However, he said it would take several years to return to previous capacity levels. “The output is stabilising but at lower levels. The construction market in Europe is still depressed.” He said the company is seeing some stability in the selling prices going forward.

Meanwhile, Adams said the company will appeal in the court against the consortium of four companies for backing out of the TCP contract. The consortium included Marcegaglia SpA, Dongkuk Steel Mill Co, Alvory SA and Duferco Participations Holding Ltd.

These companies had agreed, in 2004, to buy 78% of the production of TCP under a 10-year slab offtake agreement. The consortium backed out of the contract after four years.

Savitha K and Manuja Pandey of NW18 contributed to the story