Turnaround specialist and the world’s largest steel maker ArcelorMittal on Monday entered the race to take control of debt-laden Essar Steel, which is facing insolvency proceedings that allow for auction of the company’s assets.
The Lakshmi Mittal-led company’s Indian operations, ArcelorMittal India (AMIPL) has placed its bid for the stressed steel company, well ahead of the deadline of Monday 5 PM. According to a PTI report, Vedanta Resources, JSW and Tata Steel shunned the bidding that may have touched Rs 35,000-40,000 crore. A consortium led by Russia's VTB Group also submitted its bid.
ArcerlorMittal may take along Nippon Steel & Sumitomo Metal Corp for the takeover, while VTB used a Mauritius- based investment vehicle Numetal, where Rewant Ruia, Essar Group promoter Ravi Ruia's son held 25 per cent stake. VTB has 40 per cent interest in Numetal while the reamaining is with private equity funds.
Sources said both ArcelorMittal India and Numetal deposited Rs 500 crore in the escrow account to convey their interest in Essar Steel.
ArcelorMittal’s bid makes the auction process for the Essar Steel interesting as the company’s existing promoters– the Ruias–are making all efforts to retain their prized asset through a consortium led by VTB Bank of Russia. The consortium is expected to make an aggressive pitch for the stressed entity.
“Essar provides a compelling opportunity for ArcelorMittal to enter the high growth Indian steel market," said Lakshmi Mittal, chairman & CEO of the steel behemoth.
"The offer submitted today (Monday) by AMIPL includes a detailed investment plan to address operational issues in Essar’s existing asset base. With our industry expertise and renowned operating prowess, we believe we are uniquely equipped to implement a successful turnaround which would be beneficial to Essar’s stakeholders," Mittal said in a statement.
For Mittal the bid for Essar would be yet another attempt to make a foothold in the growing steel market in India. Land and raw material related issues had earlier derailed ArcelorMittal’s plan to set up 12 million tonnes (mt) plants each in the states of Odisha and Jharkhand, for which MoUs were inked more than a decade back.
In 2010, the company entered into an MoU with Karnataka for a six million tonne steel plant. Even this project is yet to take off due to raw material related issues after the Supreme Court ordered mining restrictions in the state.
Founded by Shashi and Ravi Ruia, Essar Steel was referred to the National Company Law Tribunal last year after it accumulated early Rs 50,000 crore debt.
Apart from ArcelorMittal, Tata Steel was also expected to put in a bid.
With Essar Steel being the last of the prized assets on offer in the initial list of 12 companies identified by the Reserve Bank of India for insolvency proceedings, industry watchers expect the bids to be aggressive. While the liquidation value of Essar Steel has been pegged at Rs 20,000 crore, reports say that bids might be has high as Rs 40,000 crore.
Essar Steel is an integrated flat steel producer, with its main production facility in Gujarat. It has a nameplate crude steel capacity of 9.6 million tonnes per annum, although the current maximum achievable crude steel production level is 6.1 mtpa, due to a bottleneck in the steelmaking and casting process.
Speaking about the bid, Aditya Mittal, ArcelorMittal Group CFO and CEO and son of Lakshmi Mittal, said, “This opportunity aligns with the group’s strategy of selectively investing in attractive projects to maximise long-term shareholder value. India is expected to be the world’s fastest growing economy over the next decade and as the economy grows its steel intensity will also increase."
Led by SBI, lenders in June this year had decided to begin insolvency proceedings against Bhushan Steel, Essar Steel and Electrosteel Steels by referring them to the NCLT for recovery.