India: Tata Steel to sell SE Asia ops to China’s HBIS Group for $327m

Chongqing Steel
Photo: Reuters

Tata Steel today announced that it is selling the bulk of its interest in its South East Asian steel operations to China’s HBIS group for cash consideration of $327 million while retaining 30% equity interest in the operations. The definitive agreements were signed in Beijing on Monday and the deal is expected to close in 2-3 months, Tata Steel’s management said.

A press note from the company said that TS Global Holdings Pte. Ltd. (“TSGH”) (an indirect wholly owned subsidiary of Tata Steel Ltd.) has executed definitive agreements with an HBIS Group Co-controlled entity to divest its entire equity stake in NatSteel Holdings Pte. Ltd. and Tata Steel (Thailand). “As per the agreement, the divestment will be made to a company in which 70% equity shares will be held by an entity controlled by HBIS and 30% will be held by TSGH.”

NatSteel Holdings reported revenue of ₹5,181 crore in FY18 and has a net worth of ₹1,039 crore. Tata Steel Thailand reported revenue of ₹4,361 crore in FY18 while its net worth was ₹1,303 crore as of March 2018.

Chinese state-owned HBIS Group is amongst the largest steel makers in the world and is a leading player in China’s home appliance and automotive steel industries, and supplies steel for nuclear power, marine engineering, bridges and construction. It has revenues in excess of $40 billion and total assets exceeding $50 billion.

In a conference call with journalists, TV Narendran, MD and CEO of Tata Steel, said that the group had been in talks with HBIS for the last few months. “Our experience in SE Asia and their aspirations in this geography make this a good partnership,” he said. “HBIS was keen to build partnership with Tata Steel and we believed we could optimise value by divesting and taking advantage of any upside over the next three years… We have a commercial relationship with HBIS and we want larger cooperation in many other areas, this is a good starting point.”

Koushik Chatterjee, CFO, Tata Steel, explained that the transaction has been valued at 1.5 times the book value of the assets. “The enterprise value is about $685 million, which includes about $535 million of combined equity as a business and $150 million of debt. What we get for our share in the business is $327 million plus if there are any adjustments at the closing level. Because of this transaction, there will be some deconsolidation of debt at the group level.”

The transaction is part of Tata Steel’s strategy to offload its marginal assets globally and find partners for its more significant international businesses. The company is also in the process of finalising a JV with with Thyssenkrupp which will house its European operations and place it on a stronger footing. “India allows us a lot of growth opportunities and we want to focus on India from a growth point of view,” Narendran said. “In other geographies, we want to create structurally strong enterprises that can stand on their own so that the parent can focus its capital on growing the India business.”

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