Tata Steel plant in Scunthorpe, northern England _ Reuters

Tata Steel Ltd has announced a 50:50 joint venture with German steel maker ThyssenKrupp AG.

After one-and-a-half years of negotiations, the two companies have agreed to merge their European steel operations to create the continent’s second-biggest maker of the alloy. With this deal, Tata Steel aims to reduce debt and focus on expansion in its home market.

The deal will not involve any cash, Tata Steel said. Both groups will contribute debt and liabilities to achieve an equal shareholding and remain long-term investors, reports Mint.

As per the agreement, the new entity ThyssenKrupp Tata Steel will be based in Netherlands, have an annual sales of 15 billion euros (US$ 17.83 billion), shipments of about 21 million tonnes of flat steel products and 48,000 employees.

The deal, which will create a steelmaker second only to ArcelorMittal in Europe, is expected to be completed by the end of next year after the two companies receive regulatory approvals. The memorandum of understanding signed by the companies outlined annual synergies of 400-600 million euros (around US$ 480-720 million) as well as up to 4,000 job cuts, or about 8% of the joint workforce.

In March last year, Tata Steel decided to put its entire UK business on sale in the face of a slump in steel demand and prices. Tata Steel Europe was struggling with poor steel demand and competition from cheap Chinese imports and this had put its parent company Tata Steel under severe strain.

The annual report of Tata Steel Europe mentions that gross debt as of March 31, 2017 was 6.9 billion euros (US$ 8.20 billion) and 61% of this was through borrowings from the Tata Steel group. For the new joint venture entity and Tata Steel, handling this debt will be a major challenge.

Tata Steel had acquired Anglo-Dutch steel maker Corus Group Plc in 2007 and renamed it Tata Steel Europe in 2010.