ArcelorMittal’s approval for Essar Steel takeover opens door to new market, assists recovery of Indian steel sector

The recent grant of approval from the Indian Supreme Court for ArcelorMittal’s acquisition of Essar Steel brings an end to years of legal wrangles, giving the global steelmaker access to a much sought-after market, and allowing the Indian steel sector to take a further step toward health.

ArcelorMittal has been keen for some time to break into the domestic Indian steel market because it is one of the few parts of the world where it does not have steel production assets. It has previously described the acquisition as presenting a unique opportunity “to establish a significant footprint, with substantial expansion potential, in the high-growth Indian steel market.”

The company had earlier announced plans to build an integrated steel plant in the Indian state of Odisha with capacity for 12 million tonnes per year, but these were scrapped in 2013 because it was unable to obtain land and secure iron ore supplies.

Along with the Essar takeover, ArcelorMittal is working on a joint venture to produce steel for the automotive sector with state-run Steel Authority of India (Sail).

Essar Steel is an integrated steel mill with capacity at its steel works in Hazira, Gujarat, to produce 10 million tpy of hot-rolled, cold-rolled and galvanized flat steel products, steel plates and steel pipes, which are sold mainly through domestic sales channels. It also owns an iron ore mine in east India.

But a bottleneck in the company’s steelmaking and casting systems means that its maximum achievable crude steel production is currently 6.10 million tpy, according to ArcelorMittal.

This latest purchase of a bankrupt steel mill continues to improve the health of the Indian market, which has faced several insolvencies of steelmaking assets.

The resolution plan for Essar Steel India Ltd (ESIL) by ArcelorMittal subsidiary ArcelorMittal India Private Ltd (AMIPL) was unconditionally approved by the Indian Supreme Court on November 18 this year. It was the final procedural step in ESIL’s corporate insolvency process. Completion of the transaction is now expected before the end of the year.

ArcelorMittal announced its takeover bid on February 12, 2018, and won the bid on October 26 in the same year.

After completion, ArcelorMittal will own and operate Essar in a joint venture with Nippon Steel & Sumitomo Metal Corp (NSSMC).

“India is one of the most promising markets in the world, with significant growth potential in the medium and long terms, and where domestically produced steel products have a superior position,” NSSMC said.

But the takeover process has taken several years. It began in August 2017 when India’s National Company Law Tribunal (NCLT) approved the commencement of insolvency proceedings against Essar Steel , after the steelmaker said that it was unlikely to be able to pay off debts totaling 450 billion rupees ($6.3 billion) within the following 25 years.

ArcelorMittal had submitted a detailed plan during its bid to address operational issues in Essar Steel’s existing asset base, which include its output limitations.

Part of ArcelorMittal’s plan is to increase ESIL’s finished steel shipments to 8.5 million tonnes over the medium-term, with a long-term aspiration for shipments of 12-15 million tonnes through the addition of new iron and steelmaking assets, although no timeframes were given for this work.

It includes an upfront payment of 420 billion rupees toward ESIL’s debt, with a further 75 billion rupees to support operational improvement, increase production levels and deliver enhanced levels of profitability.

The continuing consolidation of the Indian steel industry is a “right step” in restoring growth and credibility to the domestic markets, Nathani Group’s Zain Nathani, and vice-president of Bureau of International Recycling ferrous division,  said at the BIR World Recycling Convention & Exhibition in May this year in Singapore.

He added that bankrupt mills such as Bhushan Steel, Monnet Ispat & Energy, Essar Steel and Usha Martin have all found new owners, which is a positive development for the Indian steel industry. Tata has acquired Bhushan Steel and Usha Martin, while Monnet Ispat & Energy is owned by a JSW Steel-led consortium.

“While finished steel and ferrous scrap prices [in India] are still volatile, the consolidation of the industry will start prices moving in a more positive direction and continue so for the rest of the year,” he said in May.

The price of steel scrap shredded, index, import, cfr Nhava Sheva fell continuously from July 12 at $319.09 per tonne to $251.81 per tonne on September 27, before staging a recovery in October in November, averaging $283 per tonne during November.

Other companies which expressed interest in Essar included Tata Steel, which is hoping to move toward its goal of doubling its steelmaking capacity in India. It purchased Bhushan Steel in 2018 , boosting its production capacity by 5.6 million tpy.

The restarting of idled steel capacities in the country as a result of the new ownerships will help the Indian government’s plans to curb scrap imports and boost reliance on domestic supplies .

The country has ambitions to achieve steel output of 300 million tpy by 2030-31, compared with output of 106.5 million tonnes of steel in 2018, a figure which was itself up by 4.9% year on year.

India’s Ministry of Steel is seeking to establish a network of recycling centers to collect and process ferrous scrap. This comes as Tata Steel expands its domestic recycling policy by creating the first steel recycling plant in the country.

Timeline of events
February 12, 2018
ArcelorMittal subsidiary AMIPL submits first bid and resolution plan for Essar Steel India Ltd (ESIL), in line with the corporate insolvency resolution process for Essar.

March 2, 2018
ArcelorMittal announces a joint-venture agreement with NSSMC to acquire ESIL.

March 23, 2018
Bids for Essar by new company Numetal, a consortium with Russia’s VTB Bank and a member of the Ruia family, who founded the Essar Group, and Arcelormittal are both rejected for violations of the Insolvency and Bankruptcy Code (IBC), intended to prevent those with links to a defaulting party from bidding to reacquire the same assets in the insolvency process.

ArcelorMittal challenges this at NCLT.

April 2, 2018
ArcelorMittal submits offer in re-bidding process for ESIL, with joint-venture partner NSSMC.

September 8, 2018
The National Company Law Appellate Tribunal (NCLAT) rules that both Numetal and ArcelorMittal are eligible to bid after they challenge each other’s eligibility.

Numetal is required to cut ties with Rewant Ruia, a person with family links to the founders of the Essar Group, as part of the consortium with Russia’s VTB Bank, while ArcelorMittal must clear unpaid debts related to Uttam Galva and KSS Petron.

September 10, 2018
ArcelorMittal submits revised proposal for acquisition of ESIL.

September 18, 2018
ArcelorMittal and Numetal take to their bidder eligibility challenges against each other to the Indian Supreme Court.

October 4, 2018
The Indian Supreme Court rules that ArcelorMittal and Numetal can both bid for Essar if they pay the outstanding debts connected to them within two weeks.

October 17, 2018
ArcelorMittal approves a payment of 75 billion rupees to clear overdue debts so that the offer submitted for ESIL on April 2, 2018, is eligible and can be considered by ESIL’s Committee of Creditors (CoC).

October 19, 2018
ArcelorMittal is selected as preferred bidder for ESIL by the CoC.

October 26, 2018
Essar Steel’s CoC votes to approve ArcelorMittal’s acquisition of Essar Steel. The company is issued with a Letter of Intent stating that it has been identified as the successful applicant. ESIL’s CoC has now approved ArcelorMittal’s resolution plan for ESIL.

March 8, 2019
ArcelorMittal’s resolution plan for Essar Steel approved by NCLT.

May 8, 2019
Appeal launched by an Essar Steel shareholder, Prashant Ruia, against ArcelorMittal’s bid on the grounds that the company is not eligible due to unpaid loans of a business linked to a family member.

July 4, 2019
NCLAT rejects the appeal against Essar Steel’s sale to ArcelorMittal.

November 18, 2019
Indian Supreme Court approves ArcelorMittal’s acquisition of Essar Steel.