Tata Steel Announces US$1.6bn Writedown

India’s Tata Steel said that it expects to make a US$1.6bn non-cash writedown of goodwill and assets due largely to falling demand for its products in Europe.

The group is one of the world’s largest steel producers, with annual turnover of US$26.1bn in 2012 and more than 80,000 employees across five continents and 26 countries, while the writedown is the largest for a company with Indian operations since UK telecoms group Vodafone announced a £2.3bn impairment charge on its unit in the country in 2010.

Tata’s decision follows an even larger €3.6bn writedown announced last December by German rival ThyssenKrupp, which also cited overcapacity and falling prices in the European steel market as a major factor in its decision.

A notice issued by Tata to the Bombay Stock Exchange (BSE) read: “The impairment is primarily due to a weaker macroeconomic and market environment in Europe where apparent steel demand has fallen significantly in 2012-13 by almost 8%, which in aggregate results is almost 30% since the emergence of the global financial crisis in 2007.”

“The above underlying condition is expected to continue over the near and medium term and has led to the downward revision of cash-flow expectations underlying the valuation of the European business.”

Tata added: “The impairment also includes the effect of write down of assets in the ferrochrome business in South Africa and the mini blast furnace in Tata Steel Thailand which has been impacted by the high cost of raw material feedstock.” Tata’s estimate of an 8% fall in Europe’s demand for steel in 2012-13 means that it is now one third lower across the Eurozone than when the financial crisis broke in 2008.

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