• Angela
  • 2018-02-13 16:34:12

Mittal vs Ruias: The battle for Essar Steel

LN Mittal's dream to have a steel facility in his home country has been an unfulfilled one. For someone who has steel plants all over the world, including in South-East Asia, Europe and the US, this has been one inexplicable vacuum in his global footprint.

The owner of the largest steelmaker in the world had tried. He wanted to build mega plants in Odisha, Jharkhand and Karnataka. But more than a decade of attempts later, none of the projects has taken off.

There are smaller projects, including one with Steel Authority of India, that are on the works. But what Mittal would like is one of those mammoth steel plants churning out the hot metal, especially when the Indian market is set to double to more than 200 million tons within a decade.

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The pursuit of that dream has now landed him at the gates of Essar Steel. Mittal’s ArcelorMittal on Monday put in a bid for Essar Steel, which had been referred to the National Company Law Tribunal for accumulating debts of over Rs 40,000 crore.

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Though interested in other companies, such as Bhushan Steel, who were also brought under the hammer, ArcelorMittal had refrained from bidding till now. Mittal was waiting for the biggest prize of them all.

「Essar provides a compelling opportunity for ArcelorMittal to enter the high growth Indian steel market," Mittal, Chairman and CEO of ArcelorMittal said in a statement on Monday.

It’s compelling, but not easy.

Mittal will have to counter the challenge from Shashi and Ravi Ruia. The brothers will be keen to hold on to the steel business, which is an integral pillar of their empire that lost some sheen in 2016. They had to sell Essar Oil to Rosneft in 2016 for USD 13 billion to pare debts. Essar Steel is another jewel, and the brothers are not ready to part with it.

An amendment in the Insolvency and Bankruptcy Code (IBC) – it barred promoters from bidding for their stressed companies unless they cleared dues – prevents the brothers from making a direct bid. But the family has created a complex structure in the form of Numetal Mauritius, which has Russia’s VTB Bank and Rewant Ruia, son of Ravi Ruia, as shareholders. Numetal submitted its bid for Essar Steel yesterday.

Rewant is said to hold 10 per cent stake in the consortium.

"Numetal has submitted a bid for Essar Steel India Ltd. The company is led by VTB and other minority shareholders. Any details of the bid cannot be disclosed at the moment," the company said in a mailed statement to Moneycontrol on Monday.

「Connected person」

Sources tell Moneycontrol that the bids will be opened on Wednesday. 「The resolution plans presented by the two companies will be studied tomorrow. Thereon, the bids will be forwarded to the Committee of Creditors. An announcement may be possible as early as next week,」  a senior executive from the industry said today.

But others contend that the process may be slower and complicated.

ArcelorMittal may have sold its stake in the Uttam Galva Steels, which had been also referred to the NCLT for unpaid dues;  but questions remain on Mittal’s investment in another company KSS, whose unit KSS Petron as defaulted.

ArcelorMittal has clarified that its bid for stressed assets in India won』t be compromised by its investment in KSS Petron. But on Wednesday, as its bid for Essar Steel is opened and examined by the resolution professional, the company will still have to answer questions.

The Ruias also face a similar predicament. Though Rewant Ruia is a minority shareholder in Numetal, will he be considered as a promoter? If yes, does that mean that Ruia is a 「connected person,」 as defined under the IBC? The answer to that will seal the fate of the family and its legacy with Essar Steel.

The industry is abuzz with the possibility of banks turning down both the bids. 「Not only will it bring down the bidding value, but will also give an opportunity to other players to join the race,」  said an industry executive.

Tata Steel and Vedanta, among the companies who had initially shown interest in Essar Steel, surprised everyone by not submitting a bid on Monday. Will they make use if that window opens?

The liquidation value of Essar Steel has been put at Rs 20,000 crore.

As intriguing the auction is at the moment, one doesn』t know if Wednesday will bring some clarity, or thicken the plot further.