The Tata Steel Board on 30 March 2016 announced plans to explore options to restructure its UK business - Tata Steel UK.
The announcement came at the end of performance review meeting of the European business of the Company (Tata Steel Europe), more specifically, of Tata Steel UK.
As per the announcement, the Tata Steel Board advised the Board of Tata Steel Europe to explore all options for portfolio restructuring including the potential divestment of Tata Steel UK, in whole or in parts.
Reasons behind the decision
The Tata Steel Group has extended substantial financial support to the UK business and suffered asset losses to the tune of 2 billion pounds in the last 5 years.
Some of the reasons behind the poor performance of Tata Steel UK are -
• The global steel demand, especially in developed markets like Europe has remained muted following the financial crisis of 2008.
• Trading conditions in the UK and Europe have rapidly deteriorated due to structural factors including global oversupply of steel and a significant increase in third country exports into Europe.
• In the last few years, European mills are struggling to contend with a flood of cheap steel exports from China. At present, China accounts for about half of the global output, thus, eroding profits worldwide.
• High manufacturing costs, continued weakness in domestic market demand in steel and a volatile currency are also some of the other important factors affecting the industry.
Tata Steel’s decision is expected to trigger a crisis in the United Kingdom. Tata Steel Europe is the continent’s second largest steel producer and its UK arm is the largest steel manufacturer in the country.
At present, it employs about 15000 workers in the UK alone that includes 4000 employees working at the country’s biggest steel plant at Port Talbot in Wales.
Besides the risk of losing thousands of industrial jobs in an economically deprived region of Wales, the restructuring of the company is expected to have a political cost for the David Cameron’s government as well.
Tata Steel’s move could have an impact on the country’s closely fought referendum, on 23 June 2016, which will decide the UK’s continuance of the membership in the European Union (EU).
While the country’s anti-EU groups blame the EU for preventing the national administration from taking austerity measures to protect the troubled industry, the supporters of the EU policies do not subscribe to this view.
About Tata Steel Group
• It was established in 1907 as Asia's first integrated private sector steel company.
• At present, it is now the world's second-most geographically-diversified steel producer.
• Its headquarters is located in Mumbai. It has operations in 26 countries and a commercial presence in over 50 countries.
• In 2007, it bought UK-based Corus Group Plc. for 12.9 billion US dollars in the biggest acquisition by an Indian company.
• It has a turnover of 22.32 billion US dollars in FY 2015 and employs over 80000 across five continents.
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Who: Tata Steel UK
What: Will be restructured