China-based Jingye Group has expressed an interest to the UK government, in buying Tata Steel UK.
According to media reports, on Oct 5, a Tata Steel spokesperson noted the rumor as speculative and ascertained it is not actively seeking buyers for its Port Talbot unit.
Jingye’s recent takeover of British Steel allowed 3,000 jobs to continue and will see the Chinese company investing around £1.2 billion ($1.6bn) to modernize the assets of the British company. Tata Steel UK is 2.7 times the size of British Steel in terms of employees.
Tata Steel UK recently sought government assistance through a loan and equity stake mechanism and negotiations for this aid are ongoing. The first loan request for £500mn was rejected by the UK government, leading to the steelmaker reapplying for a £900mn loan in exchange for up to 50pc equity for the UK government in its operations.
Both Jingye and Liberty sought government assistance but only Celsa Steel UK has received the special funding so far. At the request of the UK government, McKinsey has drawn up a blueprint for UK’s steel industry, which should provide clarity on funding objectives in the near future.
China’s ownership of its largest steel assets, large employee exposure, and ongoing financial assistance requests may have the UK government scrutinizing the potential deal and the interest by Jingye in acquiring Tata Steel’s UK arm.
If it does happen, the deal would reunite UK’s two largest steel plants, Scunthorpe and Tata Steel’s Port Talbot in South Wales. Port Talbot reportedly employs 3,000 workers and possesses an annual capacity of producing 5mn mt of pig iron and 4.9mn mt of crude steel primarily destinated for flat-rolled coils production.
Motilal Oswal, a brokerage firm, said in a recent report that weak steel demand in the EU and high cost of operations, could negatively affect Tata Group’s profitability because of its steel assets in that region. Tata Steel shares climbed 5pc in the past few days as the interest became known.