Tata Steel Must Pare Debt To ‘Sustainable’ Level, Says Chandrasekaran
Tata Steel’s debt a key challenge, says N Chandrasekaran
Tata Sons Ltd.’s Chairman N Chandrasekaran said that Tata Steel’s debt, the highest among peers in India, is one of the key challenges for the steelmaker.
“Our consolidated debt is at Rs 83,014 crore and we need to work towards reducing this to a long-term sustainable level,” Chandrasekaran said during his maiden address to shareholders at the steelmaker’s annual general meeting.
The other challenge, according to Chandrasekaran, would be on building sustainable European operations. The company's business in Europe has been a drag on its earnings.
Over the past year and a half, Tata Steel has been reducing debt by selling unprofitable assets. It sold its long products and speciality steel business in Europe. In July, it entered into a definitive agreement with the Liberty House Group to sell its two steel pipe mills in Hartlepool in the U.K.
Tata Steel will focus on ramping up production in India and operations in the country already account for around half of the deliveries for the consolidated entity. With steel demand in India expected to grow 6-7 percent per annum, it will be a focus market in the near term, said Chandrasekaran.
The company intends to add capacity at its recently commissioned plant at Kalinganagar, Odisha.
Corus Deal A Consensus Decision
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Chandrasekaran, speaking to shareholders for the first time after he took charge as the group chairman, shot down allegations of breaches in corporate governance relating to the acquisition of Corus and the company’s communications with Tata Sons.
Cyrus Mistry, after he was removed as Tata Sons chairman in October last year, had said that Tata Steel acquired Corus for over $12 billion in 2007, just a year after it was put up for sale at half the price, making it difficult to turn it around.
Chandrasekaran said the company’s board was “deeply involved” in the deliberations on the acquisition, and the decision was made on a “consensus basis”. The deal, he said, was in line with Tata Steel’s long-term strategy of growth through international acquisitions.
“Following the successful acquisition of NatSteel in Singapore and Millennium Steel in Thailand, Corus Group Plc provided a natural fit for the international portfolio including the identified synergies,” he said.
After performing well in the initial period, operations at Corus were indelibly impacted by the “unprecedented” scale of the global financial crisis in 2008, he said.
To address the issue of Tata Steel’s communication with the promoters, the company set up an audit committee to review all aspects.
“(The audit committee) has come to the conclusion that all of the company’s communications with Tata Sons were fully compliant with all applicable laws,” said Chandrasekaran.
According to Koushik Chatterjee, the group executive director of finance and corporate at Tata Steel said the company is targetting a debt-to-equity ratio of 1:1.
Tata Steel has no material debt repayment scheduled over next couple of years but can use some of its cash reserves to repay existing debt. The company currently has cash reserves of Rs 16,000 crore, which is being kept aside for strategic purposes, Chatterjee said.