Tata Might Hang in and Accept a Tata Steel UK Pension Bailout

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There are seven suitors in the ring for the United Kingdom assets of Tata Steel, but is the Indian steelmaker possibly rethinking selling the unit off and planning to keeping the business?

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A report in the Guardian quotes “sources close to Tata Steel” has claimed that Tata, even as it was going through the motions of the sale process, “was evaluating” the performance of its U.K. operations and the package of financial support that the U.K. government offered.

This steel plant at Port Talbot in South Wales, U.K., could close if Tata Steel can't find a buyer. Even as steel prices increased last week. Source: Adobe Stock/Petert2

This steel plant at Port Talbot in South Wales, U.K., might stay in Tata’s hands if the owner can work out a similar pension fix to what other suitors are offering. Source: Adobe Stock/Petert2

Hit by cheap Chinese steel imports, as elsewhere in the world, in addition to supply glut, Britain’s steel industry has been in the doldrums for some time now. In March this year, Tata Steel announced that it wanted to sell its remaining plants in the country, putting over 11,000 jobs at risk.

By May, there were seven suitors from across the globe including one from China, North America and even India itself who were knocking on Tata’s doors, wanting to buy the U.K. operations. With the deadline for potential buyers to make formal bids ending over (it passed on Monday), it was widely expected that a shortlist would be ready this week at Tata’s board meeting, but that did not happen. The company has not given a timeline when the sale process would be complete.

Why No Update?

U.K. Business Secretary Sajid Javid and Welsh First Minister Carwyn Jones met with Tata executives in Mumbai prior to the board meeting. Officially, it was not revealed what was discussed in this meeting.

But the Guardian report said Javid asked Tata to “consider keeping the business.” As it is, the U.K. government was willing to offer hundreds of millions of pounds to the buyer of Tata Steel U.K., and was also looking at ways to restructure the pension scheme, which sits at the heart of the sale controversy. The scheme had liabilities of an estimated £15 billion and costs more than £100 million a year to support. The Guardian report seemed to suggest that included in Javid’s proposal was that the same terms would be extended to Tata Steel if it was prepared to hold its stake in the business.

Bailout To Stay?

Just prior to a referendum on British membership of the European Union, the U.K. government wanted to avoid job losses, and so had offered financial support to help find a new buyer for Tata Steel U.K.

At a press briefing, too, Finance Director Koushik Chatterjee said the management was looking “at continuing and sustaining the business,” though he added a footnote, “I don’t think we have a case yet.”

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But some Tata insiders, according to the Guardian, did not rule out the possibility of Tata Steel staying on. Tata Steel was aiming for the end of June to complete the sale.

The bidders

Those who have expressed interested in Tata’s U.K. operations are:

  1. Greybull Capital, which has already bought Tata’s long products business, via a management buyout vehicle.
  2. Excalibur Steel, led by Stuart Wilkie, the head of Tata’s U.K. strip steel unit, based in South Wales.
  3. India’s second-biggest steel producer, JSW Steel.
  4. China’s Hebei Iron and Steel Group.
  5. Endless, one of the U.K.’s largest turnaround specialists based in Leeds.
  6. Liberty House, which has already taken over struggling operations such as parts of Caparo and Tata’s Scottish plants.
  7. South Carolina based Nucor, Corp. one of North America’s largest recyclers and steelmakers.

On Wednesday, British Prime Minister David Cameron, on his way to a G7 meeting, said his government continued to work towards trying to get a good outcome for Tata in South Wales, the sales process was under way, and there had been an encouraging number of serious offers.

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