OYAK sets sail to new markets with BS takeover

Turkish military pension fund OYAK’s takeover of British Steel – expected to be completed at the end of this year – will strengthen the position of OYAK’s subsidiary Erdemir Metalurji Group in the European Union as it will become the region’s third largest steel producer and should reach new markets with a new product range.

OYAK

OYAK is Ataer Holding’s parent company, and the largest shareholder in Erdemir Maden Metalurji Group, Turkey’s biggest steel producer. The Group currrently has a 9 million mt/year installed capacity. This capacity will reach 13.5 million mt after the British Steel takeover, OYAK says. The Group’s turnover is also expected to reach around $10 billion following this merger.

Erdemir Maden Metalurji Group’s Eregli works (Erdemir) produces HRC, CRC and galvanized coils, plate and tinplate, while the Iskenderun works (Isdemir) produces billet, wire rod and HRC.

In addition to iron and steel, OYAK has interests in sectors including cement, automotive, agriculture and energy. 

BRITISH STEEL

Britain’s second-largest steel producer, British Steel, which went into compulsory liquidation on May 22, has 3 million mt of installed products capacity although its crude steel capacity has been put as high as 4.5 million mt. It has production sites in the UK, France and the Netherlands.

The company produces rails, construction steel, profiles and wire rods. British Steel’s strong position in rail production will make OYAK a strategic player in that market.

HANDOVER PROCESS

“Through the acquisition of British Steel, our Group will increase its effectiveness in the value chain and the weight of value-added products in its final product portfolio. Our priority will be to increase the production capacity and to invest in clean steel production in British Steel,” OYAK Mining Metallurgy Group Head Toker Özcan said.

OYAK has received exclusivity to conduct a detailed financial, legal and operational review of British Steel for a period of 2 months. During this period, close negotiations will be held with customers, suppliers, employees and trade unions for the future success of British Steel. After the successful completion of the detailed inspection process, expected at the end of October, the handover is expected to occur before the end of 2019. 

OYAK however may face some difficulties especially in negotiations with the trade unions, as unions are stronger in the UK than in Turkey, and this may raise the labor costs of the company, an industry source in Turkey told Platts. 

Meanwhile, according to a Financial Times report Monday, OYAK plans a productivity drive that could lead to several hundred job losses among British Steel’s more than 4,000 workers.

“This may cause some serious problems in the negotiations with the trade unions. Raw materials procurement also could be costlier than Turkey in UK, while a non agreement Brexit may have some negative effects in meeting EU customers’ orders’ and British Steel’s access to the EU region. A hard period is waiting OYAK during this restructuring process,” Turkish industry source observed.

ADVANTAGES OF TAKEOVER

But, following the handover, British Steel may return to its previous days of glory with the synergy created by Erdemir, sources said.

“Turkey is the world’s 8th largest steel producer with 40 million mt of liquid steel capacity and accordingly an important player of the global steel industry. The latest investments abroad by Turkish firms within the last years, like Borusan’s US and Italy, Noksel’s Spain and Tosyali’s Algeria investments are showing that Turkey will be a more important international player and an arbiter in the coming years,” an executive of a Turkish steel producer told Platts Tuesday.

“These kind of investments are providing competitive advantages to firms as well as some protection against the globally increased protection measures,” he noted.

“Erdemir’s latest move is a very important development. Although the companies are producing different products, I believe this will create a sinergy. But, of course Erdemir has also some investment and transformation plans,” he concluded.

Drawing attention to Turkey’s important position in the global markets, another top executive of a Turkish steel producer said: “Taking into account the output, export and import figures, Turkey is one of the five top players in the global steel industry. But, it remains passive in these kind of investments. But, this is changing with recent investments by some Turkish firms in recent years. Erdemir’s British Steel investment is one of these and it is important for Turkey’s strengthening position in the global steel markets. Hope these kind of investments will continue.”

Erdemir could reach new markets with an enlarged product range after the British Steel handover, sources noted. Meanwhile, some analysts feel the takeover will also allow Erdemir to obtain cheaper credit and hedge its exchange risk more easily. Some credit rating agencies have reduced Erdemir’s credit rating this year in line with Turkey’s country rating, amid sharp exchange rate fluctuations and economic slowdown in Turkey.

— Cenk Can