Tata Steel Takes A Rs 12,560-Crore Investment Hit On European Operations

Tata Steel Ltd. reported a surprise loss in the second quarter ended September and took a hit of Rs 12,560 crore on account of restructuring of its U.K. and mainland Europe steel operations.

The investment write-down comes after Tata Steel Europe Ltd. assessed the potential impact of the economic downturn in Europe caused by external factors including higher inflation, rising rates and supply-chain disruption caused by the war in Ukraine on the outlook for its U.K. and Mainland Europe operations, according to its earnings disclosures. The company also considered likely investments required for decarbonisation of its U.K. operations driven by regulatory changes.

The restructuring costs factor in a proposal to invest in the state-of-the-art electric arc steelmaking furnace at the Port Talbot site with a capital cost of 1.25 billion pounds sterling, inclusive of a grant from the U.K. government of up to 500 million pounds, subject to regulatory approvals and other conditions. It, however, does not include potential investments in the decarbonisation of its Dutch factory.

In all, Tata Steel has so far infused $4.12 billion into its U.K. and Mainland Europe operations via loans to T Steel Holdings Pte. over the past few years. These loans were converted into equity with a carrying value of Rs 34,169 crore. On this investment, T Steel Holdings recognised an extraordinary provision of Rs 12,560 crore in the standalone statement of profit and loss for the quarter ended September.

Rs 6,200-Crore U.K. Impairment Charge

As the company invests in cleaner production, on a consolidated basis, Tata Steel U.K. has recognised an impairment worth Rs 2,631 crore against its existing carbon-intensive, heavy-end assets—blast furnaces and coke ovens—at the Port Talbot site.

In addition, it also recorded a provision of Rs 2,425 crore towards restructuring costs, including potential asset closures and redundancies. Which means Tata Steel has taken a charge of Rs 5,056 crore on account of the restructuring of the Port Talbot operations alone.

The company also provided for Rs 1,187 crore on account of liabilities towards the British Steel Pension Scheme, taking the total impairment on its U.K. operations to more than Rs 6,200 crore.

The company did not disclose the extent of restructuring and impairments in its Mainland Europe operations.

Tata Steel Europe recorded second-quarter sales of Rs 18,846.7 crore as compared with Rs 21,558.7 crore a year earlier. Its EBIT loss stood at Rs 2,512.40 crore against an EBIT gain of Rs 1,787.6 crore last year.