ArcelorMittal Essar Steel Acquisition: All You need to Know

Created on 23 Dec 2019

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Updated on 06 Jan 2020

ArcelorMittal Essar Steel Acquisition

For a very long time, ArcelorMittal, one of the world's largest steel producer, has been waiting for long to gain entry into the Indian Steel Markets.  When the company earlier announced its plans to build an integrated steel plant in Odisha, it was somehow scrapped off.

However, thanks to the downfall of Essar Steel, one of India's dominant steel manufacturers, ArcelorMittal could gain entry into one of the most sought after steel markets. And how did it happen? Essar Steel's acquisition is the correct answer.

What happened with Essar Steel? Why did it fail?

This all began in the year 2002 when Essar Steel, with a debt of 2800 crore, according to the report of Economic Times. It however, underwent Corporate Debt Restructuring and thankfully, in the year 2006, it managed to bail out. The real trouble began after Essar Steel's ambitious plans for expansion failed due to delay in environmental approvals and the non-availability of natural gas. 

By 2015, the company found itself under a mounting debt of Rs 42,000 crore. That year, the lenders pioneered the attempt to bail out the promoters from the company. That year, the company was facing severe challenges due to plummeting commodity prices and a failed expansion plan at its Hazira Steel Plant.

At a meeting in 2015, the lenders led by the State Bank of India and the ICICI Bank had given an option to the company of converting their significant chunk of debt into equity, which could be sold to potential investors later. This plan also did not work out due to the company's tantrums. Therefore, in the year 2016, when the Reserve Bank of India concluded its Asset Quality Review, it classified Essar Steel's account as one of the Non-Performing Assets.

However, in the same year, the government brought its historic Insolvency and Bankruptcy Code (IBC) of India because of which in June 2017, Essar Steel's name featured in the list of 12 stressed accounts submitted by RBI that would have to undergo insolvency action under the IBC.  The account was admitted to the National Company Law Tribunal (NCLT) in August 2017. The Ruia family had, therefore finally lost Essar Steel acquisition thus paving the way for Essar Steel acquisition.

How did ArcelorMittal enter into the picture?

As per the order of the NCLT, Essar Steel's account was admitted into the insolvency proceedings and Mr. Satish Kumar Gupta was appointed as the Resolution Professional by the NCLT. He issued an Expression of Interest on October 6, 2017, and issued Request for Proposal on December 24, 2017 regarding the prospective Essar Steel acquisition.

Accordingly, two players submitted their Resolution Plans on February 12, 2018, from ArcelorMittal and Numetal.

These players were considered ineligible due to Section 29A of the IBC. What problems did Section 29A create?  According to this section, defaulting promoters are barred from coming back and bidding for assets under the insolvency process.

While Numetal was rejected on the grounds that Numetal is a consortium led by Russia’s VTB Capital that includes the Aurora Trust owned by Rewant Ruia, which has a 25% stake. He is a member of the Ruia family that’s the promoter of Essar Steel, ArcelorMittal failed due to its record with the stock exchanges and the SEBI that the company has a 29% stake in bankrupt company Uttam Galva.

While the move was challenged in National Company Law Appellate Tribunal (NCLAT), the NCLAT however, favored the RP and considered both the first round of bids as null and void in February 2018. This decision was challenged by ArcelorMittal in the Supreme Court.

A ray of hope again shined bright where the Supreme Court of India cleared the ambiguity under Section 29A. It supported the decision of the RP, but at the same time providing a new chance to both the bidders to clear any outstanding past dues and submit a fresh Resolution Plan, thus bringing them back into the race.

NCLAT approved the Resolution Plan of ArcelorMittal on July 4, 2019. This however did not end Essar Steel's acquisition since it invited further challenges from the side of the committee of creditors since this order gave equal status to financial creditors and operational creditors which meant equal distribution of funds.

Accordingly, on November 15, 2019, the Supreme Court in its order stated that financial creditors certainly enjoy primacy over operational creditors, thus finally approving the resolution plan of ArcelorMittal.

What does it mean for ArcelorMittal?

The acquisition of Essar Steel by Arcelor Mittal jointly with Japan's Nippon Steel has now been renamed as ArcelorMittal Nippon Steel India (AM/NS India). It is one of the most strategic milestones for the steel tycoon, Lakshmi N Mittal since India is one of the most popular steel markets in the world. While for India, ArcelorMittal will bring in its expertise, particularly in automotive steel, which is also a specialty of Nippon Steel. This deal will therefore be beneficial for the Indian Steel market in the long run.

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Gaurja Newatia

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