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Tata Steel to sell UK biz: India Inc loses billions in foreign buys
Tata Steel, others sell assets abroad after taking massive impairments
Dev Chatterjee | Mumbai March 31, 2016 Last Updated at 08:45 IST
With Tata Steel planning to sell its UK
business after admitting an impairment of
£2 billion (Rs 19,100 crore approx) on
Wednesday, the company has joined a
growing list of Indian companies that lost
money in overseas acquisitions.
Be it Mukesh Ambani, the Tatas, the
Birlas or Sunil Mittal­owned Bharti
Airtel, barring Tata Motors almost all
companies have lost value by getting
their timing wrong on their overseas
acquisitions. On Wednesday, Tata Steel
announced that it would sell its British
steel making business because cheap
Chinese products were making Made­in­
UK steel unviable. In 2006, Tata Steel
shook the global steel industry with its
audacious bid of $12.7 billion for Corus
Steel. It was the biggest acquisition by
any Indian company and is also among
the worst performers in creating value for
shareholders since the acquisition.
Within months, Kumar Mangalam Birla's
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Hindalco announced a $6 bn bid for
aluminium product maker Novelis. Bharti
Airtel announced a $10.7 bn bid for
Zain's African operations in 2010. Over
the years, Hindalco, Bharti, Tata Steel
had to write off investments.
The silver lining is the Jaguar­Land
Rover acquisition by Tata Motors and
Taro by Sun Pharma, which resulted in
good returns for shareholders. Experts
say Indian companies failed mainly due
to the 2008 financial crisis and more
recently due to the commodity and oil
crash.
Mukesh Ambani's Reliance Industries,
which invested close to $8 bn in shale
gas joint ventures in the US is getting
negative returns on its investments. The
oil crash worldwide has made shale gas
exploration unviable and Reliance
Industries is looking at ways to cut its
losses.
While Ambani was hit by falling oil
prices, the Adani group lost money due
to declining coal prices. The acquisition
of the Abbott Point coal terminal in
Australia for $2 bn has not done well
with the port running at 54 per cent of its
capacity. The fall in coal prices to a
historical low has led to many companies
cancelling investments in new coal mines
in Australia. The Adani group's plan to
mine coal in Australia is also awaiting
financial closure. The GVK group is also
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in the same boat after it acquired the
Hancock coal mine for $1.2 bn in 2011.
"With global commodity prices moving
down sharply and markets being
inundated with cheap imports, the
viability of several industries has been
challenged. This has been a double
whammy for companies with assets
overseas as they have been buffeted in
both the domestic and global markets.
Lowering costs becomes difficult as it is
not possible to go in for major staff cuts,
and several companies have had their
profits pruned," said D R Dogra, CEO
and MD of Care Ratings. Experts suggest
Indian companies should be judicious in
acquisition abroad and sell their foreign
assets. Besides, companies need to
maintain the right blend of business from domestic and overseas operations and build their value­at­risk models accordingly.
"This way they will be able to carry the losses on the consolidated balance sheet for a prolonged period until things turn around," said
Dogra.
Most of the Indian companies are already taking steps to cut their losses. Bharti Airtel demerged its tower business in Africa and sold 8,300
towers for $1.7 bn last October. Reliance Industries sold its Eagle Ford pipeline asset for $1.07 bn last June. The Adani and GVK groups
have frozen their investments in their new coal mines in Australia. Suzlon sold its German subsidiary Senvion (earlier known as Repower)
for ^1 bn (Rs 7,200 crore) in January last year.
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