Mumbai: ArcelorMittal is facing stiff competition in its bid for Odisha Slurry Pipeline Infrastructure Ltd (OSPIL), an insolvent company whose single asset could cut the cost of production at Essar Steel by a fifth. Thriveni Earthmovers Pvt. Ltd, one of the country’s largest iron ore mine developers and operators, has offered to pay back creditors in full —principal and interest— but over a five-year period.
ArcelorMittal has made an upfront cash offer of ₹2,200 crore for OSPIL, while Thriveni has placed a bid of ₹3,300 crore, with ₹8 crore of upfront cash and the rest in staggered payments, two people aware of the bid details said on condition of anonymity. The bids were submitted on Saturday. OSPIL has ₹2,352 crore of principal outstanding to various classes of creditors. With accumulated interest, the outstanding liabilities are ₹3,300 crore.
“The committee of creditors of OSPIL has been in continued discussions with the bidders, particularly with ArcelorMittal which has won the steel plant," said one of the people cited above. “Arcelor has improved its offer through these discussions, offering 100 cents (to every dollar) on the principal outstanding. Thriveni’s offer is compelling too, with interest and principal being repaid in full. The letdown is that the upfront cash offer is quite low."
Thriveni did not respond to emailed queries while ArcelorMittal declined to comment.
OSPIL owns and operates a 253-km pipeline that connects iron ore mines in Dabuna, Odisha, to a pelletisation plant in Paradip. Essar Steel, which had commissioned the pipeline, sourced about half of its iron ore needs for its plant in Hazira, Gujarat, from Dabuna. The Paradip pellet plant converted the iron ore fines brought by the pipeline to pellets, which were then shipped to the Essar-operated port terminal in Hazira, adjacent to the steel mill.
At the time of commissioning, Essar Steel said the pipeline cut its iron ore transportation cost by ₹1,200 a tonne, as opposed to using road or rail, and significantly reduced the cost of production per tonne of steel. For ArcelorMittal, the new owner of the Essar Steel, the pipeline is critical for the plant’s production and efficiency in a price-sensitive steel market.
However, the pipeline has a checkered history. In 2015, Essar Steel sold 70% of its stake in the pipeline to India Growth Opportunities Fund, an alternative investment fund promoted by Srei Infrastructure Finance Ltd, to offload some debt from Essar Steel. At the time of the formation of India Growth Opportunities Fund, the Ruias were the largest investors in the fund through a group subsidiary. The Securities and Exchange Board of India had pulled up the fund in 2017 for using it as a vehicle to lend to various Essar entities including OSPIL and Essar Steel.
In March 2018, IDBI Bank, one of the creditors to OSPIL, initiated bankruptcy proceedings.
In 2018, Numetal Mauritius, which had rivaled ArcelorMittal’s offer for Essar Steel and in which the Essar group had a minority stake, had proposed to buy out OSPIL from Srei. However, lenders to Essar Steel and OSPIL won the right in court to block the stake sale, arguing that the pipeline is critical to the operations of Essar Steel and would affect the bidding process of the steel mill.
The remaining 30% in OSPIL is still with Essar Steel and will transfer to ArcelorMittal once its takes control of the plant.
On 15 November, the Supreme Court approved the sale of Essar Steel to a joint venture between ArcelorMittal, the world’s largest steel company by capacity, and Nippon Steel and Sumitomo for ₹42,000 crore. “Arcelor is keen to complete the acquisition of the pipeline and the steel plant at the same time," the person cited earlier said. “I think the company hopes to complete the acquisition by mid-December, before the Christmas break begins."