The Indian company had neither scale nor structural strength in the highly competitive market of the region.
Tata Steel is believed to be in talks with Hesteel Group of China to sell its Southeast Asian operation spanning across Singapore, Thailand and Vietnam.
The company has a 2-million-tonne steel capacity in the region by way of Singapore-based Natsteel and Tata Steel Thailand, two of the earliest global gambit taken by the Indian major in the middle of the last decade.
At this point it is unclear whether all the assets under these two entities are part of the potential deal with Hesteel, which is the second largest maker of the alloy in China and fourth-largest in the world by output.
Tata Steel had earlier said it was reviewing “multiple proposals” for the Southeast Asian operation, including a complete exit or a joint venture, as the company wanted to focus in regions where it has a structurally strong footprint.
A senior company official on Tuesday declined to comment on the negotiation “at this stage”.
During a conversation with this newspaper in November 2018, Tata Steel managing director T. V. Narendran had said: “We are discussing multiple proposals. There are proposals to create JV and there are proposals that people will buy out… In the next few months you will hear more.”
He had then gone on to explain that Tata Steel had decided to have a structurally strong footprint wherever it operates.
In India, the company had profitable operations but did not have scale. This was addressed after the expansion in Kalinganagar and Jamshedpur and the acquisition of Bhushan Steel.
In Europe, the company had scale but operated with wafer thin margins. It is becoming structurally strong by selling non-profitable and non-core assets in the UK and then forming a JV with Thyssenkrupp for the rest of the business.
However, the Southeast Asian operations, which earned Rs 1,736 per tonne of EBIDTA, lowest among all the geographies in the second quarter, neither had scale nor structural strength.
Southeast Asia is also one of the most competitive markets for steel globally as mills from Korea, Japan and China look to sell their excess capacity there. At the same time, it is also a market that consumes as much steel as India and also growing as fast as India (7-8 per cent annually).
Tata Steel has multiple secondary steel processing units in Southeast Asia. In Singapore, the company operates an electric arc furnace and a long steel re-rolling mill. It also operates a 200,000-tonne capacity rebar and wire rod mill in Hanoi, Vietnam.