Tata Steel Ltd will take a non-cash impairment charge of nearly Rs.5,000 crore in the quarter ended March, the company warned in a notice to the exchanges on Thursday.

The writedown relates to the impairment of goodwill on the long-products business of Tata Steel in the UK, which will now be fully impaired, the company said. The long-products business manufactures plates, wire rods and semi-finished steel for different markets.

Goodwill is an intangible asset. It is the value of brands, patents, customer loyalty, competitive rank and other intangible assets that a company might own. Goodwill is recorded on the assets side of a balance sheet at fair value. Goodwill is said to have been impaired if the fair market value is less than the carrying value.

The impairment also includes a writedown of investments in overseas raw materials projects in Mozambique, Ivory Coast and Taconite project in Canada as the economic viability of these projects remain uncertain at the current level of commodity prices, it said.

The Rs.5,000-crore impairment charge will be reflected in the fourth-quarter earnings of the company that are due to be released on 20 May. According to a Bloomberg survey of 19 analysts, the company is expected to report a net profit of Rs.203.9 crore.

“The review was undertaken taking into account the external economic environment and macro-economic conditions in each geography of operation, the underlying demand-supply imbalance facing the global steel industry, significant volatility in iron ore and coal prices in the last 12 months and the current view of long-term forecast of steel and its raw material prices,” the company said in a statement.

The company said it had undertaken a non-cash impairment charge ofRs.1,577 crore in the first quarter of 2014-15 towards its investment in the Mozambique coal project. As such, the total impairment charge for 2014-15 would be around Rs.6,500 crore in the consolidated financial results, the company said.

Analysts say the writedown is an indication that Tata Steel is now inching close to a deal to sell its long-products business in the UK, which it had been contemplating for a long time.

“The writeoff, which largely refers to the long-products business of the company’s UK operations, looks like an exercise to bring the business to its right value. The company had maintained that the outlook for the long-products business is not robust at least for the next two years and it has been planning a sell-off for at least the last two quarters,” said an analyst with a domestic brokerage. He did not wish to be named because of company policy.

Tata Steel Europe, the European arm of Tata Steel Ltd, currently has an operating capacity of 14 million tonnes per annum (mtpa), out of which the long-products division has a capacity of 6 mtpa while the remaining is flat steel product capacity.

Long steel products are those which are used for construction of buildings, railway tracks, highways and roads while flat steel is used to manufacture products such as refrigerators and washing machines, etc.

Two years ago, on 13 May 2013, Tata Steel wrote down $1.6 billion in asset values related to its European operations and other smaller businesses—six years after the $13 billion acquisition of Corus.

At the time of acquisition, the total capacity of Tata Steel Europe stood at 21 mtpa. In the last eight years, the management has not only sold off part of the capacity, but has also invested $1.5 billion to modernize the plants and machinery. However, a tepid steel market and weaker demand in Europe has prevented a turnaround in the operations so far.

“The two write-offs now reflect that there is very little value left in the company,” the analyst mentioned above said. As of the last quarter, he said, the loss- making European operations clocked an earnings before interest, taxes, depreciation, and amortization per tonne (the metric to measure per tonne operating profit of a steel company) of $49, way below the $58 per tonne posted by ArcelorMittal SA of Germany.

The European operations lost $500 million in the fiscal year 2013-14, according to Bloomberg. It also does not have any backward integration in terms of coking coal and iron ore—the staple raw materials for an efficient steel production capacity.

A weak demand for steel, coupled with lower price of the commodity, is expected to take a toll on the financial year end results of the European operations. “Sales volume of the overseas subsidiary in Europe and South-East Asia is estimated to fall 14% year-on-year and 37.4%, respectively, owing to weak steel demand and rising exports from China and Russia,” said a 15 April report by IL&FS Broking Services Pvt Ltd.

The write-off announced on Thursday also includes impairment charge on the company’s raw material operations due to a severe fall in steel, iron ore and coal prices globally in the last financial year. The three raw materials projects in Mozambique, Ivory Coast and Taconite project in Canada were being developed to ensure supply of raw material for Tata Steel’s European operations.