UPDATE 2-Loss-making Outokumpu reluctantly selling Terni as steel slumps

Fri Nov 1, 2013 10:49am EDT

(Recasts with Terni sale, adds details on reactor project)

By Ritsuko Ando

HELSINKI Nov 1 (Reuters) - Finnish stainless steel maker Outokumpu reported bigger than expected losses on Friday and said it will have to sell its Terni plant in Italy after failing to persuade European regulators otherwise.

Outokumpu had agreed to sell Terni to get regulatory approval to buy ThyssenKrupp's unit Inoxum but analysts say a subsequent slump in global steel demand means a sale may well yield a fraction of Terni's original value.

Outokumpu now faces a massive writedown on the plant and said on Friday it hopes to complete the sale this year.

Third-quarter underlying operating losses widened to 126 million euros ($171 million) from 93 million a year earlier and below the average forecast for 114 million in a Reuters poll.

Its shares briefly rose nearly 7 percent as investors welcomed positive quarterly cash flow of 124 million euros ($169 million) compared with a negative 160 million in the previous quarter, but lost momentum as a close look showed the improvement was mainly driven by a release of working capital.

They were trading down 1 percent at 0.41 euros by 1437 GMT.

"Overall, it's a clear disappointment. I must cut my estimates for the company," said analyst Antti Viljakainen at Inderes equity research. He said he was likely to maintain a "reduce" recommendation on the shares.

In an attempt to improve its finances, Outokumpu has also been in talks to sell its high-performance alloy unit VDM. It said it was in discussions with several potential buyers and expects to finalise plans by the end of the year.

It declined to comment on the level of bids, although sources have said they were likely to come in at around half of Outokumpu's initial price expectation of about 1 billion euros.

For the fourth quarter, Outokumpu forecast underlying operating results to be around the same level or slightly worse than in the third quarter. It said it expects no major improvement in market demand for the rest of the year.

Steel prices have fallen 24 percent since March 2011.

Despite the gloomy forecast, however, it said it was still planning to take part in nuclear consortium Fennovoima's nuclear reactor project, settling speculation it may pull out due to a weak business outlook.

Outokumpu has a 15-percent stake in the project for a 1,200-megawatt reactor, scheduled to be built by Rosatom, and said it would make a final decision on the matter after details are negotiated and agreed upon with the Russian firm. ($1 = 0.7356 euros) (Editing by Louise Ireland)