ArcelorMittal keen to bag Essar Steel, says it will be perfect fit

ArcelorMittal's proposal for the ailing Essar Steel includes a plan to expand the plant from its current nameplate capacity of 10 million tonnes.

Brian Aranha

Brian Aranha, executive vice president and head of strategy at ArcelorMittal, told newspersons in Kolkata that Essar Steel was a large facility and there was scope to grow the plant even bigger.

In a separate interview with ET Now, he said the project in India is very important for ArcelorMittal ''because we have been attempting to establish a steel business here for many years. It has been very difficult …

''Now, an opportunity has risen for us to be participants in the growing Indian economy. It is one of the few economies in the world where we can expect substantial steel growth over the next few years and for a company of our scale not to be taking advantage of that opportunity would be a shame. So, it is very important.''

The bankrupt Essar Steel owes banks around Rs44,000 crore and is one of the 12 cases mandated by the Reserve Bank of India for insolvency.

Asked to what extent it was possible to ramp up capacity at Essar, Aranha declined to divulge details citing confidentiality clause of the proposal, but said it was part of the plan submitted by the company. Aranha was part of the team that had done due diligence of Essar Steel plant.

According to Business Standard, industry sources it was possible for Essar Steel to ramp up capacity to 15 million tonnes which was at one point part of the company's corporate plan.

Aranha said that Essar was a unique collection of assets with all its facilities, the pellet plant, arc furnaces and Corex operations, all of which fit into ArcelorMittal's scheme of things.

ArcelorMittal has 36 electric arc furnaces and iron ore production of 57.4 million tonnes. Essar Steel's manufacturing facility comprises ore beneficiation, pellet making, iron making, steel making, and downstream facilities including cold rolling mill, galvanising, pre-coated facility, steel processing facility, extra wide plate mill and a pipe mill.

Aranha said ArcelorMittal had world class capabilities to operate those sides of the business. "We have a brand name that is known across the world, cutting-edge technology and research capabilities probably better than any potential competitors," he said. In the global automotive market, ArcelorMittal has a 17-per cent market share.

Aranha also talked about ArcelorMittal's turnaround experience in Poland, Czeck Republic and Kazakhstan. The turnaround experience is relevant in the case of Essar Steel which is facing bankruptcy.

"The growth in the Indian market in the next 10 years would probably not be seen in any other market," Aranha said.

However, ArcelorMittal's bid for Essar Steel is facing the crucial eligibility test, as is the bid from its competitor, Numetal.

The issue with ArcelorMittal is that it held a 29.05-per cent stake in Uttam Galva Steels as a co-promoter, which has now been a non-performing asset for over a year. The amendment to the Insolvency and Bankruptcy Code (IBC) allows a promoter to submit a resolution plan if it makes payment of all overdue amounts with interest.

On 7 Febuary before submitting its Essar Steel bid, ArcelorMittal, however, had transferred its entire shareholding in Uttam Galva by way of inter-se transfer at Re1 a share. ArcelorMittal has also maintained that it did not have board representation nor was it in the management of Uttam Galva.

The competing bid from Numetal also faces an eligibility test. Numetal is 40-per cent owned by the Russian financial conglomerate VTB group and 25 per cent by an offshore trust where Rewant Ruia, son of Ravi Ruia, is a trustee. Ravi Ruia co-founded the Essar group along with brother Shashi Ruia.

A decision on eligibility is expected to be reached by 5 March when the resolution professional is supposed to meet the lenders. But the date could also be extended. The bids for Essar Steel were submitted on 12 February.