Tata Steel to see cash outflow after restructuring under Port Talbot plan: CFO

Tata Steel and the UK government jointly announced an agreement to invest in state-of-the-art electric arc furnace steelmaking at the company’s Port Talbot site at a cost of GBP 1.25 billion pounds, including a UK government grant of GBP 500 million.

Tata Steel will restructure its balance sheet to reflect the current cash losses in the UK operations, and non-cash impairment of legacy assets, the company said after announcing the much awaited agreement with the UK government for its Port Talbot site. Legacy assets are those that have become obsolete or lost nearly all their initial value.

On September 15, Tata Steel and the UK government jointly announced the agreement to invest in state-of-the-art electric arc furnace steelmaking at the Port Talbot site at a cost of GBP 1.25 billion, including a government grant of GBP 500 million.

Speaking to analysts over a conference call after announcing the agreement, Executive Director and Chief Financial Officer Koushik Chatterjee said that there would be a cash outflow from Tata Steel’s balance sheet, but declined to quantify it.

“Based on the transition plan, there will be a cash outflow, it will depend on how we look at the transition and the restructuring. But whether it will be significant or not, depends on where we stand,” Chatterjee said.

Tata Steel and the UK government agreement is subject to regulatory approvals and finalisation of detailed terms and conditions.

The CFO said the company will be able to share specifics regarding the scope, nature, and timing of the restructuring after the financial results of the second quarter of 2023-24.

Tata Steel will finance its share of the investment, about GBP 700 million, through internal equity.

Focus on cash flow

Tata Steel will remain focused on managing the consolidated cash flow of the company in a manner that prioritises growth in India and also pursues the decarbonisation aspirations of its subsidiaries in the UK and Netherlands, the company’s management said in the call.

“Tata Steel’s financial outlook will improve on account of the elimination of steady cash losses once the transition happens, and the ongoing parental support for the UK business,” said Chatterjee.

Tata Steel’s gross debt stood at Rs 75,561 crore at the end of fiscal 2021-22 after the company repaid debt of Rs 15,232 crore during the year.

At Tata Steel’s 115th Annual General Meeting on June 28, Chairman N Chandrasekaran told shareholders that the company will continue to reduce debt by around $1 billion a year, but does not aim to reduce it to zero given its expansion plans.

“In India, we remain on track to nearly double our steelmaking capacity to 40 million tonnes. As you’re aware, we continue to prioritise the completion of the 5 million tonne capacity expansion in Kalinganagar,” Chatterjee said, reiterating the company’s India expansion plan after the UK agreement.

In an interview to Moneycontrol on July 31, Managing Director and Chief Executive Officer TV Narendran said that driven by demand in India, the company will spend Rs 16,000 crore on capex in FY23-24.