Steelmakers’ bids for peers facing bankruptcy may draw CCI attention
While consolidation aids the steel sector in terms of pricing power, it may potentially trigger issues of unfair competition, say experts
Mumbai: Successful bids for troubled steel companies by healthier peers in bankruptcy auctions could bring India’s monopoly watchdog into the picture, legal experts said.
Tata Steel Ltd and JSW Steel Ltd are among India’s large steelmakers seen interested in Essar Steel India Ltd, Bhushan Steel Ltd, and Bhushan Steel and Power Ltd—three steel companies currently in bankruptcy courts.
According to steel ministry data, the trio account for close to 30% of India’s flat steel capacity and over 40% of colour-coated capacity.
While consolidation aids the steel sector in terms of pricing power, it may potentially trigger issues of unfair competition, experts said. That could attract the attention of the Competition Commission of India (CCI).
The government has already restricted imports through anti-dumping measures and quality certification measures, said Mahesh Singhi, founder and managing director, Singhi Advisors. “This has forced steel users to buy steel domestically, impairing their ability to import steel at economical prices. Currently, prices of steel are almost at import parity levels. If some of the stressed steel companies get sold to existing steel players, it can create oligopolies in the steel sector where the largest market share will be controlled by a few,” Singhi added.
JSW Steel is India’s largest flat steel maker with a total capacity close to 12 million tonnes per annum (mtpa), followed by Tata Steel with total capacity close to 9.5 mtpa. Mint reported in October that Tata Steel has submitted a non-binding bid for Essar Steel, while in the same month Business Standard reported that JSW Steel and Tata Steel are among potential bidders for Bhushan Steel & Power.
Although binding bids for these companies are yet to be made, industry experts say odds seem stacked in favour of existing flat steel producers given their operational expertise and recent changes in the Insolvency and Bankruptcy Code (IBC) barring existing promoters from bidding for the assets except in a few exceptional situations.
“IBC being a new law has its challenges and is evolving on a daily basis. If any acquisition under the code by one company triggers provisions of Competition Act and requires approval, there would be an obligation to seek those approvals unless expressly exempted under the law,” said Rajesh Gupta, managing partner of corporate law advisory firm SNG & Partners. “Therefore, the insolvency resolution professional/acquirer will have to keep in mind the said provisions and comply.”
Requests for comment made to both JSW Steel and Tata Steel in this regard remained unanswered till press time.
Bhushan Steel is the largest manufacturer of auto-grade steel in India, making flat products, hot rolled and cold rolled coils, besides operating a galvanised coil and sheet line. Its clients include General Motors, Hyundai Motors, Ford Motor, Mahindra and Mahindra Ltd and Eicher Tractors. Essar Steel, meanwhile, has increased capacity utilization to 7.1 mtpa, from 35% in 2015 to over 80% in 2017.
According to legal experts, looming regulatory challenges including approval from CCI may weigh heavy on the outcome of insolvency resolution processes in some sectors unless there are further changes in the law.
However, according to several people aware of the development, who spoke on condition of anonymity, several large domestic steel firms have, through industry intermediaries such as trade bodies, already made representations before the government seeking an exemption from CCI approval in IBC cases, citing similar exemptions allowed under the Board for Industrial and Financial Reconstruction and Sick Industrial Companies (Special Provisions) Act.
- Opinion | In Rana Kapoor, RBI has a message for banks
- Deals Buzz: ShareChat raises Rs 720 crore, valuation jumps seven-fold
- J&J reaches out to patients affected by faulty implants
- Walmart begins to buy shares from current, former Flipkart staff
- Jet Airways passengers suffer ear, nose bleeding, crew forgets to maintain cabin pressure
Editor's Picks »
- Pidilite’s shares hold their ground despite weak rupee and rising crude
- Automobile sector shares trip on rising risks to earnings growth
- Steel companies are taking a shine to their home market
- Investments in HDFC AMC shares are subject to regulatory risks
- Spot electricity prices: Seasonal spikes becoming structural issue