India Business Offset Tata Steel-Thyseenkrupp Deal Collapse

Tata Motors
TATA Motors, Pune office and plant (Photo: Wikimedia Commons/Rameshng/CC 3.0 http://commons.wikimedia.org/wiki/File:Tata_motors_Pune_plant_1316.jpg)

The collapse of the joint venture of Tata Steel Ltd. and ThyssenKrupp AG brought more than $13 billion debt to the Indian group. Tata Steel plans to shift its focus to India by doubling capacity in five years through expansions at existing mills and acquiring indebted domestic mills.

The proposed deal would have allowed the Mumbai-based company to sharpen its focus on ramping up its Indian business by transferring some of the debt to the joint venture. The operation of the Indian company in Europe lost 2.2 billion euros in debt and the joint venture played an important strategic initiative to create a sustainable portfolio in Europe. According to records, the company's group debt reached $13.15 billion as March ends. It is the highest debt among Indian steelmakers.

Vishal Chandak, an analyst at Emkay Global Financial Services, said in a report that with the joint venture off the table now, the big story of deleveraging of the consolidated balance sheet will no longer be valid. He, however, added that the end of the merger is not the end of the road for Tata as it will continue with its plans to repay $1 billion of debt announced last month and invest in growth in India.

Since being hit by the 2016 commodity crisis, the Indian steel company has been trying to resolve the situation in its European Business. To gain control of its European units, the company purchased the Corus Group Plc for about $13 billion in 2017. The company has been closing and selling its plants in the United Kingdom since the financial crisis in 2008 to accumulate profit for the business. The collapse of the business deal between the two companies is timely to headwinds faced by Europe's steelmakers due to weak demand from carmakers and high imports.

The two companies offered concessions to regulators in the first quarter of this 2019 to gain the antitrust approval for the European joint venture which included selling plants in Belgium, Spain and in the United Kingdom. According to the company on Friday, offering further concessions would have undermined the business case for the deal. The two companies abandoned the merger because of the increasing likelihood of the venture not being approved by the European Commission.

Chief Financial Officer Koushik Chatterfee said on a call Friday that they are going to focus on deleveraging even more and they are also going to look at other assets sales, whatever they have in the portfolio.

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