Britain finds a buyer for one Tata steel plant

LONDON — Tata Steel agreed to sell one of its main British steelworks to investment firm Greybull Capital for £1 on Monday, saving a third of the 15,000 jobs placed in jeopardy by the Indian conglomerate's decision to sell up in Britain.

Prime Minister David Cameron has been under pressure to keep the plants open to save jobs after Tata, one of the world's biggest steelmakers, said on March 30 it would sell its loss-making British business.

As Tata formally announced the sale of its steel assets in Britain, turnaround specialist Greybull Capital LLP. said it would buy the Indian company's Long Products Europe division in Scunthorpe, northern England, which employs 4,400. It declined to rule out further purchases of Tata's British steel assets, including its plant at Port Talbot in Wales.

The sale to Greybull, for a nominal pound or 1 euro, includes a £400 million ($570 million) investment and financing package for the Scunthorpe business, as well as agreements with suppliers and unions on cutting costs.

"We're expecting no redundancies going forward, the business plan calls for no redundancies," Greybull cofounder Marc Meyohas told reporters on a conference call.

The Greybull deal, which is subject to a ballot by union members, includes two additional mills, an engineering workshop and a design consultancy in Britain, plus a mill in Hayange, in northeast France.

The purchase will see the business renamed “British Steel”, in a revival of a historic name last used almost two decades ago.

Cameron, already grappling with a divided ruling party ahead of a June 23 referendum on membership of the European Union (EU), has been scrambling to try to find buyers for Tata's Scunthorpe plant and its other main plant at Port Talbot, to save jobs.

Britain's eurosceptic media has blamed Brussels for preventing London from taking greater steps to protect the steel industry while the opposition Labour Party has called on Cameron to do more to save the plants.

Tata, which owns iconic brands such as Jaguar Land Rover and Tetley Tea, is offloading its British steel operations, citing a global oversupply of steel and cheap imports from China, high costs and weak domestic demand.

British Steel?

The deal for the Scunthorpe plant, which Tata had been trying to sell since 2014 before revealing talks with Greybull were underway in December, is expected to complete in eight weeks subject to certain conditions being met.

Greybull, which is not taking on pension liabilities, said about half of the £400 million package would come from shareholders of Greybull and half from banks and government loans.

"We're expecting the company to be profitable in year one and that's very much the management plan," said Meyohas, who co-founded Greybull in 2008 after 12 years as chief executive officer of technology services company Cityspace.

Though the deal is positive for the Scunthorpe workers, there is deep unease in Port Talbot, Britain's biggest steel plant, where 4,000 people could be out of a job if Tata fails to find a buyer.

"While very welcome, it does not mean that we are out of the woods yet," said Gareth Stace, director of trade association UK Steel.

"A long-term investor is needed, in the very short term, for the remainder of the whole of the Tata Steel UK business, including Port Talbot," added Stace.

Scunthorpe produces steel mainly used in construction and infrastructure projects, whereas Port Talbot produces slab, hot rolled, cold rolled and galvanised coil which is used in products from cars to washing machines to food cans.

Finding buyers for Port Talbot and Tata's other assets, could take some time given the complexity of any deal, including negotiations over everything from pensions liabilities to energy subsidies.

Greybull said to date it had been wholly focused on the Scunthorpe deal, but declined to rule out future interest in the Port Talbot plant.

"Whether it's Tata or any other assets, we'll review it as and when is appropriate," Meyohas said.

Another potential bidder for the Port Talbot plant is Sanjeev Gupta, the boss of metals trader Liberty House Group.

‘Loss-making’

Gupta told Reuters on Friday that he was serious about making an offer and had the backing of a group with $7 billion of revenues, hitting back at critics who have questioned his capacity to take on a business dragged down by heavy debt and weak sales.

However, much will depend on how much any potential investor is willing to pay to even hope of turning around the business.

"It's a loss-making business and a loss-making business is not worth a lot in itself to buy," Gupta indicated. "It's more of a question of what are the resources required in turning it around."

Tata, under former Chairman Ratan Tata, bought its UK steel operations in 2007 after outbidding Brazil's CSN to buy Anglo-Dutch steelmaker Corus for $12 billion as a way to access the European market.

But the Indian conglomerate, controlled by philanthropic trusts endowed by the Tata family, struggled to turn the steelmaker around.

Like competitors such as ArcelorMittal, the world's top steel producer, Tata has been hit by plunging prices due to overcapacity in China, the world's biggest market for the alloy.

China said on Monday it wants to work with the rest of the world to find an appropriate resolution to overcapacity in the steel sector, after Britain asked Beijing to hurry up and tackle the problem.

Tata Steel is the second-largest steel producer in Europe with a diversified presence across the continent. It has a crude steel production capacity of over 18 million tonnes per annum (mtpa) in Europe, but only 14mtpa is operational.

The closure of Tata Steel's operations in Britain would leave a hole in manufacturers' supply chains, dealing a blow to thousands of smaller firms across the country and creating a logistical headache for the car industry.

Some of Tata's customers are already looking for new sources of steel which is used in everything from car roofs to Heinz baked bean cans, cladding on Ikea buildings and some of the country's coins.

While bigger names have the luxury of a global supply chain to fall back on, smaller companies, which account for around 95 per cent of British manufacturing firms, face a tougher task if Port Talbot in south Wales closes.

Tata sells around half of its products into the domestic market, the firm said in 2014.

"It would be entirely undesirable from my point of view," said Tony Mullins, executive chairman of QRL Radiators Group, a Tata Steel customer that makes heating radiators near the Welsh town of Newport, employing around 150 staff.

Looking abroad for steel would leave firms like QRL that use British steel exposed to swings in the currency exchange rate and higher transportation costs. It might also need to hold more stock if it is buying from the other side of the world, having an impact on working capital.

"We have to be competitive, we have to produce quality products and historically with Tata that has been possible for us," Mullins added.

Driving force

Britain, the birthplace of the modern steel industry, has been struggling to compete since its post-war heyday and has shed thousands of jobs in recent years.

Since 2001 imported supplies have met more than half of its domestic demand, according to the International Steel Statistics Bureau (ISSB), as local producers struggled with high energy costs, green taxes and fierce competition.

Germany is the biggest foreign supplier of steel to British manufacturers and construction firms, followed by China, Spain, Belgium and the Netherlands, the ISSB indicated.

The government maintains that the main problem is the collapse in the price of steel. China has flooded European markets with relatively cheap steel as a result of its own falling demand.

Britain imported 826,000 tonnes of Chinese steel in 2015, up from 361,000 two years earlier, according to industry data.

According to the ISSB, China has produced more steel in the last three years than Britain has since the industrial revolution.

Those British steelmakers that remain have been kept going by local manufacturers, a resurgent car industry and foreign demand.

"Hot-rolled coil is produced [at Port Talbot] and that predominately goes into the automotive sector... that's the bodywork," Dominic King, head of policy and representation at industry group UK Steel, told Reuters.

Five carmakers built almost 99 per cent of Britain's 1.6 million cars last year and all source steel from Port Talbot, with some already looking for alternatives should the site shut.

The country's biggest carmaker Jaguar Land Rover (JLR) , which made just under a third of national output last year, gets around 30 per cent of its steel from the site while Nissan, which operates Britain's biggest single car plant in northern England, buys 45 per cent from there.

Showing the cost constraints within the industry, John Leech, who heads up the automotive team at KPMG and works with some of the country's biggest carmakers, said JLR could not afford to give preferential treatment to a more expensive product even though it is owned by Tata Motors, part of the same family of companies as Tata Steel.

"To compete against BMW and Mercedes, Jaguar Land Rover needs to makes sure its cars are cost-competitive and that means using materials that are sourced cheaply and competitively," he added.

JLR said: "Like all other independent businesses, we make our own purchasing decisions based on the right commercial reasons." The firm added that it continued to use Tata Steel and did not see any short term impact on its business.

A spokesman at General Motors-owned Vauxhall, which uses Tata's high-strength lightweight steel in its Astra hatchback model said it was "considering the scenario of UK steel plant closures on supply sources".

"There are a number of sources of steel in Europe that are used by our plants in Spain, Germany and Poland," the spokesman said, when asked whether the firm was looking elsewhere.

Leech said timing could be key, with Tata Steel saying it wants to exit Britain as soon as possible.

"It will mean a lot of fast footwork behind the scenes but... the ability to get the same steel from other European or Chinese plants in [a one to three-month] time frame is a possibility," he added.

Buy British

For many of the workers leaving the Port Talbot plant at the end of their shift last week the news has come as a shock, given the investment made under Tata's ownership.

"Tata certainly have influenced training more than the old regime..." said Dave Bowyer, 59, a steelworker for 40 years and Unite union representative, whose ancestors were steelworkers.

"The workforce itself has become far more technical. Our craftsman and production guys, even the guys on the shop floor — a number of them have got degrees," he added

UK Steel's King said there were many advantages to the British product which continue to attract buyers.

"One is customer service, that you have that close link with the manufacturer... you know in the UK that they are going to be meeting the energy targets, the environmental targets that are out there [and] that engineering skill," he added.

The industry is also known for its highly-skilled flexible workforce with no strike action in 30 years.

Rollo Reid, technical director and grandson of the founder of REIDsteel, one of Britain's largest steel construction companies which sources almost 90 per cent of its steel from Tata, worries that if Port Talbot closes, prices will rise.

"There will be one less competitor and when the other European ones go out of business, there will be less competitors and then the price will go up and we'll be completely within the hands of the Chinese," he said.