PEs unlikely to buy Tata Steel Europe England, says Amit Rathi of AnandRathi Brokerage
Tata group planning to sell Tata Steel Europe’s long products plant in Scunthorpe, England, would have to endure disinterest from buyers. Post Commodity firm Klesch Group’s exit from the sales talk a few months ago, there is an air of discomfort among the buyers. Even though a few prospective buyers are appearing in the picture, there isn’t any actual steel producer in this list. The sources, however, say that a few Private Equity Firms may be interested in buying this plant from Tata Steel Europe. Amit Rahi, M.D of AnandRathi Financial Services thinks it is unlikely for a PE funds to show interest in such an investment.
Private Equity firms look for quick returns, typically aiming for 25% returns and are known to exit from investments in about 5-7 years.
Amit Rathi says, “ The last commodity bull market was there for 10 years and the bear market before that was there almost for 20 years…these are very long cycles and difficult to play for investors. I would be very surprised if a PE investor would take a bet on such an asset. It would be too much of a macro call which is not what typically PE funds do.”
Another deterrent for Tata Steel Europe is that even though the plant in Scunthorpe, England has bagged prestigious contracts from London Crossrail, one of Europe’s biggest rail and infrastructure projects, the prices for the contracts aren’t fixed. With China depreciating its currency, the speculations are the steel supply from China would be more, subduing the export from England.
Tata Steel Europe’s statement, in response to a questionnaire, says it is looking at all strategic options for the long products business. “We are doing all we can to give the business the best chance of survival in this fiercely-competitive global marketplace,” it says.