Tata Steel, India's largest steelmaker, aims to reduce its business presence in Southeast Asia including Thailand after the local unit completed its share sale to a new venture partnership with a Chinese steelmaker.
On Jan 28, SET-listed Tata Steel Thailand Plc (TSTH) submitted a letter to the Stock Exchange of Thailand that Tata Steel Global Holdings Pte Ltd, TSTH's major shareholder, entered into a share purchase agreement with Hebsteel Global Holding Pte, a wholly owned subsidiary of HBIS Group Co from Hebei, China.
Tata Steel Global Holdings will sell 5.72 billion shares, representing 67.9%, to a new joint venture company incorporated in Singapore and hold an ownership by Hebsteel Global Holding and Tata Steel Global Holdings.
Hebsteel will hold a 70% stake in the new joint venture company, while Tata will own the remainder.
The agreement will be worth 4.52 billion baht at a price per share at 0.79 baht. TSTH expects to complete the purchase transaction in the next 3-4 months.
Mangal: Supportive role in region
TSTH's president and chief executive Rajiv Mangal said the new joint venture company will also buy all shares of Singapore-based NatSteel Holdings Pte Ltd from Tata Steel Global Holdings.
Mumbai-based Tata Steel will receive US$327 million in total from two share purchase agreements: NatSteel and TSTH.
"Tata will have a 30% stake through the steel business in Southeast Asia, which are still meaningful shares as Tata will play a supportive role in this region," said Mr Mangal.
"The Chinese counterpart is aiming to expand its steel business in Southeast Asia after it opened a steel plant in the Philippines, so the synergy of the two companies will create a stronger business in this region."
NatSteel has manufacturing plants across the region -- Vietnam, Malaysia and Thailand for sheet products -- while TSTH operates three plants in Chon Buri, Rayong and Saraburi specialising in rebar and wire rods.
He said steel demand in Southeast Asia stands at 80 million tonnes annually with 5-6% growth, so this market has enough potential for HBIS Group's expansion as it is the second largest in China and the fourth largest in the world in terms of steel output at 46 million tonnes.
HBIS Group wants to enter the region as a second market to ship steel in a bid to prevent risks from the US-China trade war.
Tata Steel plans to focus more on its home country India, where the current steel industry is more dynamic for Tata.
"In India Tata is committed to expanding its steel business worth $12 billion towards a long-term perspective, so it needs to finance that budget by selling assets," said Mr Mangal.
India has 1.3 billion people and steel demand of 100 million tonnes.
Based on India's GDP rising 7% annually, the country must expand on many infrastructure and construction projects in the next 10-15 years.
Steel demand in India is projected to reach 300 million tonnes over the next 20-25 years.
"Tata is the largest steelmaker in India and needs to invest in line with India's economic growth, otherwise it will be left behind," he said.
Mr Mangal said both companies have yet to name the new joint venture, but after they complete the transaction the management team will change top executives -- the chief executive and chief financial officers will come from Hebei, while Indian executives will be positioned in the deputy level.
In a related development, TSTH reported sales volume from April-December of fiscal 2019 stood at 849,500 tonnes, down by 5.75% from the same period the year before.
A major contraction came from its rebar and cut and bend products in the domestic market, while wire rods for the period dropped slightly to 257,000 tonnes.
TSTH's export volume during April-December grew sharply by 44.3% to 100,000 tonnes to Laos, Cambodia, Indonesia and India.
TSTH posted 16.74 billion baht in sales for the period, up by 3.74%, while it posted a net loss for the period of 72 million baht.
Mr Mangal said the fourth quarter of fiscal 2019, ending in March, is expected to help offset the contraction in sales volume in the first three quarters.
In addition, TSTH expects to record a net profit in fiscal 2019.
In 2018, global crude steel output grew by 4.6% to 1.81 billion tonnes, while China's production for the period reached 928.3 million tonnes, up by 6.6%, representing 51.3% of the global output.
Thailand's crude steel production in 2018 stood at 4.3 million tonnes, a decrease of 3.5%.