Tata Steel Ltd (TATA) (TATA)., India’s biggest producer, is considering selling some of its U.K. assets as a weakening economy erodes demand leaving factories underutilized, two people with knowledge of the matter said.
Selling the U.K. units, acquired as part of a $12 billion takeover of Corus Group Plc six years ago, would help Tata cut debt, the people said, asking not to be identified as the information is private. It is also considering selling part of its Australian operations, another person said. The people didn’t specify which of the assets Tata Steel may sell.
Tata Steel has three major assets in the U.K., with a capacity of 10.6 million metric tons annually, including a mill at Port Talbot in West Glamorgan in Wales and a plant at Scunthorpe in South Humberside, England, according to its latest annual report.
Steelmakers in Europe, where Tata Steel generates two-thirds of its output, are grappling with excess capacity, falling prices and rising operating costs. The region has capacity to make about 210 million tons of steel a year, while demand in a “normal market” is 150 million to 160 million tons, according to industry lobby group Eurofer.
“The plan is good but it will be difficult for them to execute this under the given market conditions,” said Rakesh Arora, head of research at Macquarie Capital Securities (India) Pvt. “There are hardly any buyers. It probably won’t help in improving their debt conditions much.”
Charudatta Deshpande, a spokesman for Tata Steel, declined to comment on a potential sale in an e-mailed reply to questions. Tata Steel (TATA)fell 0.5 percent to 304.40 rupees at the close in Mumbai today. The stock has slumped 34 percent in the past year, compared with a 5.8 percent increase in India’s benchmark S&P BSE Sensex.
Tata Steel needs to redeem a total of $5.5 billion in bonds and loans by November 2016, according to data compiled by Bloomberg. Most of the group’s net debt of $10.5 billion was taken to fund the Corus acquisition.
The company’s losses widened to 7.63 billion rupees in the three months ended Dec. 31 from 6.03 billion rupees a year earlier, it said on Feb. 13.
Tata Steel (TATA) in November said it plans to restructure its U.K. business, cutting 900 jobs and closing 12 sites as the industry battles overcapacity and slumping demand. The cuts will include the loss of 580 jobs and the closure of its Tafarnaubach and Cross Keys plants in South Wales. Further jobs will go in Yorkshire, the West Midlands and Teesside.
Tata Steel in February 2011 sold its Teesside Cast Products unit in northeast England, part of Corus, to Thailand’s Sahaviriya Steel Industries Pcl (SSI) for $469 million. The acquisition included coke ovens, power generation facilities and the Redcar Blast Furnace.
In December of that year, the company said it mothballed the Llanwern hot strip mill in Newport, cutting 115 jobs. The mill will remain shut until the economy and steel demand justify a restart, it said then. Last November, it announced measures to restart the mill.
Tata Steel makes engineering steel in Australia, according to its website.
The company closed its acquisition of Corus in April 2007, renaming the company Tata Steel Europe Ltd.
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