In its order, the NCLT, however, asked ArcelorMittal to offer 15% of the upfront cash settlement of ₹42,000 crore, or ₹6,300 crore, to operational creditors. The original resolution plan only offered ₹196 crore to operational creditors against claims of ₹4,976 crore. The NCLT order means financial creditors—the banks—will have to take a deeper haircut on the asset.
“We welcome today’s pronouncement by the NCLT Ahmedabad. While we will need to review the full written order once it becomes available, we hope to complete the transaction as soon as possible," said a spokesperson for ArcelorMittal.
An Essar spokesperson said: “We continue to believe that our settlement offer of ₹54,389 crore is the most compelling one available to Essar Steel creditors and fulfils IBC’s declared overriding objective of value maximization, which has been established time and again by courts at all levels. We are also confident of the legal validity of our said offer made under Section 12A, which provides for the withdrawal from the IBC process by making full payment to the creditors. We are awaiting a copy of the NCLT order and will take a call on next steps after examining the same."
While ArcelorMittal has proven expertise in turning around sick steel units and driving down costs till the plants turn viable, Essar Steel's turnaround will be its most ambitious yet.
“The Essar Steel plant has always been the highest-cost flat producer in the country," Atanu Mukherjee, president at M.N. Dastur and Co., a global metals and energy consultant, said in an interview two weeks ago. “Its products are generally priced at $480-490 a tonne on the cost curve, while competitors JSW Steel and Tata Steel, with much lower costs of production, cash in on high margins as the highest cost producer sets the price ," he said.
If ArcelorMittal enters India and sets the sick Essar Steel unit right, it will “flatten the cost curve" through investments and operations management, thus eating into the margins of competitors. That’s one reason steel producers would prefer a struggling steel plant on India’s western coast rather than one that is up and running, Mukherjee said. “The ensuing competition that ArcelorMittal is going to force on incumbent players could thus be intense," he said.
ArcelorMittal is the world’s leading steel and mining company, with a presence in 60 countries and an industrial footprint in 18 countries.
Mittal made several attempts to get his foot in the door in India, notably with projects planned in Odisha and Jharkhand in 2005 and 2006, but none took shape. In 2010, the company signed an agreement with the Karnataka government to set up a 6 million tonne per annum capacity, but the land acquisition process for this project has only just been completed.
The bulk of Essar Steel’s steelmaking capacity is built to run on natural gas. Operations at the plant ran into trouble in March 2011 when the then government changed its gas allocation policy and cut off the supply to the company after categorizing the steel sector to “non-core" from “priority". The company has said in the past that it had to bear a loss of approximately ₹26,000 crore between 2011 and March 2016 due to non-supply of gas.
In May 2017, Essar Steel’s lenders—with the State Bank of India as the consortium leader—had come close to finalizing a restructuring proposal for the company. However, in June, the Reserve Bank of India (RBI) identified the asset as among its "dirty dozen" for immediate resolution at the bankrutpcy courts.
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