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Crisis in Tata Steel Europe as India unit refuses to fund losses

Crisis in Tata Steel Europe as India unit refuses to fund losses

British government has reportedly roped in investment bankers to help thrash out a rescue plan for country's biggest steel producer after months of talks over a deal that could preserve thousands of jobs

Tata Steel is left with limited options to turn around its sick European business Tata Steel is left with limited options to turn around its sick European business

The crisis in Tata Steel Europe hits the inflection point as the Indian parent informed the British government that it won't be able to fund the losses in the UK, said sources. "Tata group Chairman N Chandrasekaran told the same to company executives in January, but the present economic crisis forces the steelmaker to compensate for heavy losses," said a source in the group.

Tata Steel posted a steep consolidated net loss of Rs 4,609 crore in the April-June quarter because of the bleeding UK business. The Indian entity reported a profit of Rs 1,193.27 crore in the first quarter, despite the lockdowns.

Also read: Tata Steel Europe stares at bleak future amid global and local concerns

According to latest reports, the British government has roped in investment bankers to help thrash out a rescue plan for the country's biggest steel producer after months of talks over a deal that could preserve thousands of jobs. Sky News reported that Credit Suisse has been asked by the Treasury to advise on talks. Tata Steel owns the giant Port Talbot plant in South Wales. The government has also deputed McKinsey to draw up a blueprint for the future of the UK's steel industry.

Also Read: Will assets sale, job cuts turn around Tata Steel Europe?

The management of Tata Steel is left with limited options to turn around its sick European business. N Chandrasekaran at the company's annual general meeting (AGM) had said the company simplified the structure in Europe by reducing the number of subsidiaries to 151 from over 300. He added the management is actively involved in finding a sustainable and structural solution in Europe.

The CEO and Managing Director TV Narendran and Executive Director and CFO Koushik Chatterjee, in the company's integrated report 2020, said that significant market headwinds, particularly in the last two quarters, and the disruptions caused due to the COVID-19 pandemic, have made the issue complex in Europe.

The company is running a transformation programme, which aims at reducing the cost of operations, to improve productivity, focus on marketing and sales, and improve competitiveness both in the UK and the Netherlands.

Also Read: Tata Steel faces battle with unions over plans to cut up to 3,000 European jobs

The debt-ridden steelmaker has realised benefits of about Euro 370 million in the last financial year due to these improvement programmes.

Earlier, Tata Steel and German steelmaker Thyssenkrupp planned to combine the steel businesses in Europe to turn around their ailing businesses. But the proposal failed to receive the approval from the European Commission. Tata Steel Europe, erstwhile Corus Plc, was acquired by the Indian steelmaker for $12 billion in 2007. It has a 12.3 MT steel-making capacity.

The reports said that Tata Steel had earlier sought 900 million Pound financial aid from the UK government in exchange for an equity stake of up to 50 per cent in its UK business.  It employs about 8,000 people in the UK, including 3,500 at Port Talbot.

Also Read: Tata Steel Europe to fire 2,500 employees as the company continues to bleed money: Report