Essar's founders bid to buy back steel unit: Update

The founding family of India's private-sector Essar Steel has offered $7.4bn to creditors in an attempt to take the company out of the bankruptcy resolution process, complicating a bid by global steelmaker ArcelorMittal for the firm.

The counter offer by the Ruia family, which controls the Essar conglomerate, came after Essar Steel's creditors' committee officially declared ArcelorMittal as the successful bidder for the company yesterday. Japan's Nippon Steel & Sumitomo Metals (NSSMC) is a joint-venture partner with ArcelorMittal in the bidding.

Essar Steel entered India's bankruptcy process last year. The bidding process started in October 2017.

The Ruia family said its bid would repay Essar Steel's entire debt to all creditors, while the ArcelorMittal bid would only meet requirements of secured creditors — essentially banks.

ArcelorMittal said the Ruias' bid does not meet legal requirements since the bankruptcy law requires the founders to make any offer to settle loans before the bidding process begins. But the new bid may extend litigation around the bidding process, with both the bankruptcy court and the Supreme Court likely to weigh in.

ArcelorMittal confirmed the value of its bid for Essar Steel is $5.7bn. ArcelorMittal has additionally repaid $1bn in dues to two Indian companies in which it had equity holdings, Uttam Galva and KSS Petron, to remain eligible as a bidder for Essar.

ArcelorMittal plans to invest an additional $1.1bn in Essar Steel to expand finished steel shipments to 8.5mn t/yr in the medium term. Essar Steel is currently producing crude steel at an annualised rate of 7.2mn t/yr, a company executive recently told Argus. Essar Steel is not a publicly listed company and does not disclose finished steel output.

And ArcelorMittal plans to expand Essar Steel's capacity in the long term to increase finished steel shipments to 12mn-15mn t/yr through the addition of new steel-making assets. Essar Steel and NSSMC will jointly operate the plant if the bid is successful.

ArcelorMittal expects India's bankruptcy court to approve the acquisition by the end of this year.

India put five steel firms up for auction last year to recover debts owed to creditors, but Essar Steel is the biggest of these companies. Essar Steel is one of the six, large integrated steelmakers that account for around 45pc of India's crude steel output. It also has 10mn t/yr of pig iron capacity in the western town of Hazira and 20mn t/yr of iron ore pelletising capacity, the largest in India. Indian pellet demand has surged in overseas markets, especially China, since 2016, making it a valuable source of business for steel producers.

source: Argus Media