Tata Steel Europe England in a tight fix, says Amit Rathi of AnandRathi Brokerage
Tata group planning to sell Tata Steel Europe’s long products plant in Scunthorpe, England, will have to put up with a conundrum. There exists a dearth of buyers for the plant. Commodity firm Klesch Group’s exit from the sales talk a few months ago has created an atmosphere of uncertainty among the buyers. Sources claim that there is no actual steel producer interested in buying the plant from Tata Steel Europe. However, a few Private Equity Firms may be interested in buying this plant from Tata Steel Europe. Amit Rahi, M.D of Anand Rathi Financial Services is skeptical about this prospective acquisition.
The biggest point of concern is that Private Equity firms look for quick returns, typically aiming for 25% returns and are known to exit from investments in about 5-7 years.
Amit Rathi says that the last commodity bull market was there for 10 years and the bear market before that was there almost for 20 years; these are very long cycles and difficult to play for investors. It would be a surprise if a PE investor would take a bet on such an asset. It would be too much of a macro call which is not what typically PE funds do.
Another deterrent for Tata Steel Europe is that even though the plant in Scunthorpe, England has bagged prestigious contracts from London Crossrail, one of Europe’s biggest rail and infrastructure projects, the prices for the contracts aren’t fixed. With China depreciating its currency, the speculations are the steel supply from China would be more, subduing the export from England.
PEs look for good quality management and even a cultural fit in companies they want to buy stakes in so that they can have some say in the operations. In Tata Steel Europe’s case, there is political interference as the state of the steel manufacturers is a subject of debate in the British Parliament.
Tata Steel Europe’s statement, in response to a questionnaire, says it is looking at all strategic options for the long products business. “We are doing all we can to give the business the best chance of survival in this fiercely-competitive global marketplace,” it says.
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