Swedish steel maker SSAB will complete the due diligence of Tata Steel’s Netherlands business in two months, potentially leading to a binding agreement for the sale of the Dutch unit.
The company said the proceeds of the sale may be able to pay part or all of the 1.7-billion-euro debt on Tata Steel Europe’s books as deleveraging the balance sheet becomes key to the Indian steel maker’s business plan going forward.
A sale of the Ijmuiden operations will leave the Tatas with the UK business for which the company is seeking a more “substantive and permanent” solution from the Boris Jonson government. So far it has received only short-term assistance.
A research report put out by Edelweiss suggested that the deal may be done at a valuation of six times of through-the-cycle EBIDTA, using the recently stitched transaction between ArcelorMittal and Cleveland Cliffs for the US business as the benchmark.
Going by those metrics, the 7-million-tonne Ijmuiden steel asset could fetch as much as $3 billion, or Rs 22,500 crore.
Edelweiss believes the possibility of better cash proceeds may be expected as Tata Steel Netherlands is one of the most profitable assets in Europe.
The management said the deal was likely to face less hurdles than what it faced with the Thyssenkrupp transaction, which failed to get approval from the European Commission.
“There were overlaps in packaging and automotive business with Thyssenkrupp. Some of the user industries raised objections to that transaction. We do not see such issues with SSAB,” said T.V. Narendran, managing director and CEO of Tata Steel.
Tata Steel has started the process of separating the UK and Dutch operations and consultations with the Dutch government, unions and the supervisory board are on.
The company’s stock reacted to the SSAB announcement and stellar performance of the India business as many brokerages upgraded the stock to buy.
It touched a 52-week high of Rs 530.95 on the NSE during the trading hours before closing at Rs 522.70, up Rs 30.6, or 6.2 per cent.
On the BSE, too, shares touched their 52-week high of Rs 530.80 before ending at Rs 522.80, up 6.24 per cent.
In India, the company said it would focus on growing the flat steel business at Jamshedpur, Kalinganagar and Angul and may not participate if and when NMDC’s steel plant comes up for sale.
However, Narendran said Tata Steel would be interested in the disinvestment of public sector Neelachal Ispat Nigam Ltd (NINL), which is based in Odisha.
“It is a long product producer and it is something we may see,” he added.
