NRI billionaire Lakshmi Mittal-led ArcelorMittal had won a bid to acquire debt-laden Essar Steel for over Rs 42,000 crore, a deal that will help fulfill the world’s largest steel maker’s long-time ambition of having an India mill.
A committee of Essar Steel creditors picked ArcelorMittal on October 25, a day when the Ruia family offered to pay lenders Rs 54,389 crore including Rs 47,507 crore in upfront cash to clear all their dues in a last-ditch effort to avert losing their flagship company.
In a statement, Arcelor-Mittal said its resolution plan for Essar Steel, which the lenders auctioned to recover over Rs 49,000 crore of unpaid loans, included “an upfront payment of over Rs 42,000 crore” to settle debt and “a further Rs 8,000 crore of capital injection into the company to support operational improvement, increase production levels and deliver enhanced levels of profitability”.
Subsequent to being declared the highest bidder on October 19, the Committee of Creditors (CoC) has issued ArcelorMittal a Letter of Intent (LoI) declaring them as “successful applicant”.
Essar Steel promoters, however, wanted the CoC to consider their offer as it offered maximum value to all stakeholders, saying it could not be ignored citing some process lacunae.
A company spokesperson said the offer was superior to ArcelorMittal’s bid as it provided 100 per cent repayment to lenders and met the objectives of maximisation of value and protection of the interest of all stakeholders. “It cannot be ignored just because the offer to pull out the company out of bankruptcy was not made before CoC called bids.”
He said Section 12A of the Insolvency and Bankruptcy Code (IBC) that allowed withdrawal of insolvency proceedings subject to approval by 90 per cent of the creditors and the National Company Law Tribunal (NCLT), was introduced in June 2018, much after the EoI in case of Essar Steel was floated on October 20, 2017.
It wasn’t immediately clear if lenders even considered offer of Essar Steel promoters.
In a separate statement, Nippon Steel & Sumitomo Metal Corporation said it had been “engaged in, together with ArcelorMittal, acquisition procedures aiming at jointly acquiring and managing Essar Steel”.
“On October 25, Arcelor-Mittal India Pvt Ltd, a subsidiary of ArcelorMittal and the resolution applicant, has been declared the successful applicant by Essar Steel’s CoC. The acquisition will be implemented subject to the approvals of Indian National Company Law Tribunal and other relevant authorities,” it said.
The announcement comes a day after founders of Essar Steel made a surprise offer to pay Rs 54,389 crore to creditors to settle claims and allow the company to exit the bankruptcy process. But many saw it as being violative of Section 12A of the IBC since the bid process is now over and Ruias haven’t offered to clear dues of group firms which total to around Rs 80,000 crore.
ArcelorMittal said Essar Steel was an integrated flat steel producer with annualised crude steel production of 6.5 million tonnes. It also has iron ore pellet facilities in the east of India, with a current annual capacity of 14 million tonnes per annum.
ArcelorMittal intends to raise Essar Steel’s finished steel shipments to 8.5 million tonnes over the medium-term by completing the ongoing capital expenditure project and infusing expertise.
In the long-term, it wants to increase finished steel shipments to between 12 and 15 million tonnes through the addition of new iron and steelmaking assets, the company statement said expecting the deal to close before the end of 2018.
“After completion, ArcelorMittal will jointly own and operate Essar Steel in partnership with Nippon Steel and Sumitomo Metal Corporation (NSSMC), the Japan’s largest steel producer and the third largest steel producer in the world.
“ArcelorMittal and NSSMC expect to finance the joint venture through a combination of partnership equity (one-third) and debt (two-thirds), and ArcelorMittal anticipates that its investment in the joint venture will be equity accounted,” the statement said.
The NSSMC said India was one of the most promising markets in the world with significant growth potential in the medium and long-term.
“In order to further expand and strengthen our global business, NSSMC has been seeking opportunities to engage in integrated steel production in India to steadily capture the growing demand for steel products, which is expected to increase along with the development of infrastructure,” the company said, adding it along with ArcelorMittal will be able to turn around Essar Steel to be a competitive steel manufacturer.
In its offer, ArcelorMittal has proposed to pay Rs 41,987 crore to financial creditors and Rs 214 crore to operational creditors and employees.
Essar Steel founders — the Ruia family — first attempted to maintain a toe-hold in the company through a minority stake in VTB-led consortium Numetal, which was among the three bidders putting in offers. But they exited NuMetal when the eligibility was questioned as IBC does not allow delinquent promoters to bid. On Thursday, the Ruia family made a last-ditch effort through an independent offer.
Mining baron Anil Agarwal’s Vedanta was the third bidder.