Lakshmi N. Mittal, chairman and chief executive officer of ArcelorMittal, will shortly discover if his pursuit of becoming a steel producer to reckon with in his native country will come true.

On 8 March, the Ahmedabad bench of the National Company Law Tribunal is set to decide whether the world’s largest steel maker’s 50,000 crore resolution plan for bankrupt Essar Steel is acceptable.

In the global steel consumption map, India appears as one of the few bright spots. The World Steel Association forecast in November that India’s steel demand will grow 7.3% in 2019, compared with a 2.7% rise globally (excluding China). For ArcelorMittal, the past decade was a slow crawl-back to profitability even as the company, weighed down by debt, saw its market capitalization fall from a high of $117 billion (2008) to $23.7 billion now. To secure its future growth, an acquisition in India is imperative.

“The acquisition of Essar Steel is the path of least resistance for ArcelorMittal to enter India," said Atanu Mukherjee, president, MN Dastur and Co., a global metals and energy consultant.

In 2005-06, ArcelorMittal announced greenfield projects with investments of more than $12 billion in Jharkhand and Odisha. Nothing has come of these plans. In 2010, it pursued a $6 billion project in Karnataka, which is still in limbo. Despite the protracted legal battle involved in winning Essar Steel and the top dollar he is paying for the asset, Mittal has rightly judged this as his sure-shot way to achieving a big foothold in India.

In 2018, Luxembourg-listed ArcelorMittal reported its highest earnings before interest, taxes, depreciation and amortization (Ebitda) in a decade of $10.3 billion. Net debt was $10.2 billion.

“ArcelorMittal is now doing well globally; its revenue, shipments and Ebitda are up, debt is down and the leverage ratio is low, thus expanding its borrowing capacity. But, a bulk of ArcelorMittal’s revenue comes from Europe and the Nafta region, and these are not growth markets. India is arguably the only large growth market for steel in the world, so it makes strategic sense for them to invest capital here now," said Mukherjee.

“Starting a greenfield steel plant in India is difficult because the field is so closely guarded by incumbents. Although the numbers seem high now, I don’t think a company like ArcelorMittal will invest so much unless they’re sure the bet will work out in the long term," the analyst said.

The price, though, is steep.

ArcelorMittal has offered upfront cash settlement of 42,000 crore to lenders of Essar Steel and 8,000 crore capital infusion into the plant at Hazira in Gujarat. For the steel mill with an annual nameplate capacity of 10 million tonnes, an acquisition cost of 5,000 crore per million tonne is pricey.

The steel mill brings with it an iron ore pelletization plant each at Visakhapatnam and Paradip, and a downstream steel hub in Pune, close to one of India’s automotive manufacturing hubs offering a high-margin business of selling auto grade steel.

What it does not include, though, is two slurry pipelines that will transport the ore from the mining states—a 267km pipeline Bailadila(Chhattisgarh) to Visakhapatnam, and a 253km pipeline from Dabuna to Paradip, both in Odisha. Also significant is a 30mtpa all-weather, deep-draft, dry bulk port and a 515 megawatts (MW) natural gas-operated captive power plant at Hazira in the steel mill’s vicinity.

This is where the Ruias, the original promoters of the Essar group, will look to extract their pound of flesh from ArcelorMittal. The port-power plant combine is valued at 8,500-10,000 crore. ArcelorMital, meanwhile, has also offered 4,800 crore for Essar Power’s 1200MW thermal power plant in Mahan, Madhya Pradesh, to its creditors as a one-time settlement.

The slurry pipelines will cut the cost of transporting iron ore—the primary input in making steel—to less than 1/tonne/km from 3/tonne/km by rail, the next cheapest option, Mukherjee estimated. Each of the two pipelines is likely to command a value of 2500-3000 crore, he added.

A spokesperson for ArcelorMittal declined to comment.

An Essar Group spokesperson did not respond to emailed queries.