tata steel: Consolidation of Tata Steel is likely to be a complex process, say experts

The Tata Group’s decision to consolidate its metal and resource companies into Tata Steel is likely to be a very complex and time-consuming effort for the group where the scheme of amalgamation will require approvals from stakeholders along with regulatory approvals.

The group has initiated the process to consolidate its seven subsidiaries including four listed companies Tata Metaliks, Tata Steel Long Products, TRF Ltd and Tinplate Company of India Ltd into Tata Steel Ltd. The other three companies are Indian Steel & Wire Products Ltd, Tata Steel Mining Ltd and S&T Mining Company Ltd.

“Each scheme of amalgamation will require approvals from shareholders, creditors and stock exchanges. There could be other approvals required from regulatory authorities,” said Sudip Mahapatra, partner at S&R Associate. “Finally, the National Company Law Tribunal (NCLT) will need to approve the scheme. Typically, such amalgamations take 6 to 12 months to complete.”

Tata Steel, in its regulatory filing, said it has taken this step to improve operational efficiencies that include centralized sourcing which would result in procurement synergies and reduction in stores/spare through common inventory management.

Tata Steel 1

According to Chandubhai Mehta, managing partner of law firm Dhruve Liladhar & Co, the compliance department of Tata Steel is likely to remain busy for a ‘really long time’ due to this announcement. “This is a very tedious and complex scheme that involves coordination with several listed companies, regulators, statutory authorities and shareholders among others to consolidate all the companies into one,” said Mehta.

The steel behemoth is looking for better utilization of common facilities and greater efficiencies in debt and cash management.

“The proposed consolidation as approved by the respective boards of directors, is likely to consume time in view of multiple regulatory interface and necessary approvals/no objection requirements, including that of the designated stock exchanges and the jurisdictional bench of national company law tribunal,” said Harish Kumar, partner of law firm Luthra and Luthra Law Office.

This amalgamation is also part of Tata Steel’s continuing journey to simplify the group holding structure. Since 2019 Tata Steel has reduced 116 associated entities, due to which 72 subsidiaries have ceased to exist, 20 associates and joint ventures have been eliminated and 24 companies are currently under liquidation.

Nishith Dhruva, managing partner of law firm MDP & Partners said, in recent times, some amalgamations have taken longer due to the backlog at the NCLT. “Apart from scheme matters like these, tribunals hear cases related to the Insolvency & Bankruptcy Code (IBC) and also disputes about oppression and mismanagement and most benches are overburdened with work,” said Dhruva.

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