Chandrasekaran defends acquisition of Corus Steel

Tata Steel chairman N Chandra-sekaran on Tuesday defended the acquisition of Corus Steel in the UK and said all allegations were incorrect as the decision was one of the long-term strategies to grow through international acquisitions.

Addressing the 110th annual general meeting (AGM) here, Chandrasekaran said during the second-half of the previous fiscal, the company had faced challenges owing to leadership change at Tata Sons.

"During this period, certain specific issues relating to acquisition of Corus were raised. It is now evident that such allegations were incorrect,” he said.

Tata Sons former chairman Cyrus Mistry had raised issues regarding acquisition of Corus.

Chandrasekaran said the international growth strategy was to focus on accessing new markets, sourcing raw materials, enhancing the technology capability and developing high-end premium products.

"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 told shareholders.

The value of Corus increased since the initial bid, in line with the commodity price boom, its underlying performance and the transaction process.

The acquisition was through a transparent auction process managed by the takeover regulator in the UK and the acquisition price per share was 5 pence higher than the next bidder, he said. The acquisition of Corus was effective April 2007.

In the first financial year after the acquisition, the Ebitda of Tata Steel UK, the SPV which acquired Corus, was British pound (GBP) 1,038 million, compared to GBP 687 million in the previous year.

"This performance justified the reasonableness of the acquisition," he said. The sudden and unprecedented scale of the global financial crisis in 2008 had a very significant negative impact on the industry fundamentals in Europe which has also impacted the performance of Corus.

"The board was deeply involved in all the deliberations on Corus that took place over multiple board meetings and had approved the acquisition of Corus on a consensus basis,” Chandrasekaran said.

The board of directors have always acted in the best interest of the company and will continue to do so in the future, he said.

The company has a professional and competent leadership team for the management of the business, Chandrasekaran told shareholders. He informed that in less than a month Ishaat Hussain and Andrew Robb will retire from the company’s board.

Chandraseka- ran said the company is optimistic about prospects of the domestic steel sector, and hopes to ramp up the production capacity of its Kalinganagar plant to capture growing opportunities. He said the global steel demand is expected to grow at 1.3 per cent in 2017 and 0.9 per cent in 2018.

The demand for steel in China will remain flattish while in the euro zone it will be mildly positive. Steel demand in the country is expected to grow significantly at 6-7 per cent per annum in the next two years, he said.

"We are optimistic of 2017-18 being a better year for the domestic steel industry and we are set to capture these opportunities. We will endeavour to ramp up our production capacity, particularly at Kalinganagar, and leverage our new and differentiated product range," Chandrasekaran said.

The plant achieved the fastest ramp-up for a greenfield project and it will be an important growth driver for the company, he said.

Commenting on challenges, he said the company's consolidated debt is Rs 83,014 crore and it needs to work towards reducing it to a long-term sustainable level. The company also needs to focus on building sustainable European operations, Chandrasekaran said. In the domestic market, Tata Steel's deliveries grew by 15 per cent, significantly better than the broader market and reached a level of 11 million tons.

"We expect to increase this further to around 12.5 million tonnes this year," Chandrasekaran said.

In Europe, while the company's deliveries declined by 9 per cent compared to the previous year, its revenues in British pound terms increased by 9 per cent. This was predominantly driven by 20 per cent increase in the average revenue per tonne, he said.Last year, the company took several strategic decisions to strengthen its European portfolio, he said.