Luxembourg-based world’s major steel producer, ArcelorMittal said on Friday (26) that it has been selected by the lenders to take over the debt-ridden Indian steel firm, Essar Steel for Rs 420 billion (£4.48bn).
“ArcelorMittal announces Essar Steel India Limited’s (ESIL) Committee of Creditors (CoC) has voted to approve the company’s acquisition of ESIL. ESIL’s resolution professional, on behalf of the CoC, has issued the company with a letter of intent stating that the company has been identified as the ‘Successful Applicant’,” said ArcelorMittal in a statement.
“Further to ArcelorMittal being named the H1 resolution applicant (the preferred bidder) on October 19, ESIL’s CoC has now approved the company’s resolution plan for ESIL, with the letter of intent identifying it as the ‘successful resolution plan’,” the steel giant added.
The resolution plan includes an upfront payment of Rs 42bn towards ESIL’s resolution debt, with a further Rs 80bn of capital injection into ESIL to support operational improvement, increase production levels and deliver enhanced levels of profitability.
ESIL is an integrated flat steel producer and the largest steel company in western India. Its current level of annualised crude steel production is 6.5 million tonnes. ESIL also has iron ore pellet facilities in eastern India, with a current annual capacity of 14 million tonnes per year.
The company aims to increase ESIL’s finished steel shipments to 8.5 million tonnes over the medium-term, according to its resolution plan. This will be achieved by initially completing ongoing capital expenditure projects and infusing expertise and best practice to deliver efficiency gains, and then through the commissioning of additional assets, while simultaneously improving product quality and grades to realise better margins.
A long-term aspiration of the firm is to increase finished steel shipments to between 12 and 15 million tonnes through the addition of new iron and steel making assets, in order that ESIL can play an active role and fully benefit from the anticipated growth in the Indian steel industry.
In-line with ESIL’s corporate insolvency process, the company’s resolution plan must now be formally accepted by India’s National Company Law Tribunal (NCLT) before completion, which is expected before the end of 2018.
After completion, ArcelorMittal will jointly own and operate ESIL in partnership with Nippon Steel and Sumitomo Metal Corporation (NSSMC), Japan’s largest steel producer and the third largest steel producer in the world, in-line with the joint venture formation agreement signed with NSSMC on March 2, 2018.
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.