Tata Steel to Divest Majority Stake in its South East Asian Assets

According to the latest updates, India's one of the leading steel manufacturers Tata Steel has informed that its step-down subsidiary TS Global Holdings Pte Ltd (TSGH) will divest its entire equity stake in Singapore based NatSteel Holdings Pte Ltd (NSH) and Thailand based Tata Steel (Thailand) Public Company Ltd (TSTH).

In a press note released by the company today (i.e. Monday 28 Jan'19), TSGH has signed an agreement with China's steel conglomerate HBIS Group and 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.

The time expected for completion of the sale is about 3-4 months subject to the regulatory approvals and the amount received from the sale is of assets by TSGH is USD 327 million. The buyer is the company in which HBIS Group has a majority stake of 70%. HBIS Group is one of the largest steelmakers in the world with revenues of over USD 40 billion.

Why Tata Steel sold its SE Asian assets?

Tata Steel had about 2-million-tonne steel capacity in the SE Asian region by way of Singapore-based Natsteel and Tata Steel Thailand which are two of the earliest global gambit taken by the Indian major in the middle of the last decade.

The company has sold its SE Asian units as part of its strategy to exit non-scalable businesses and turn focus to the domestic market. In November last year, the company's Managing Director T.V. Narendran had elaborated in one its interviews that the company had decided to have a structurally strong footprint wherever it operates.

In India, the company had profitable operations but did not have scale. This was addressed after the expansion in Kalinganagar and Jamshedpur and the acquisition of Bhushan Steel.

In Europe, the company had scale but operated with wafer-thin margins. It is becoming structurally strong by selling non-profitable and non-core assets in the UK and then forming a JV with Thyssenkrupp for the rest of the business.

However, the Southeast Asian operations, which earned INR 1,736 per tonne of EBIDTA, lowest among all the geographies in the second quarter last year, neither had scale nor structural strength.

Southeast Asia is also one of the most competitive markets for steel globally as mills from Korea, Japan and China look to sell their excess capacity there. At the same time, it is also a market that consumes as much steel as India and also growing as fast as India (7-8% annually).

Tata Steel has multiple secondary steel processing units in Southeast Asia. In Singapore, the company operates an electric arc furnace and a long steel re-rolling mill. It also operates a 200,000-tonne capacity rebar and wire rod mill in Hanoi, Vietnam.