ArcelorMittal wins bankrupt Essar Steel despite Ruias' last ditch effort
26 October 2018
ArcelorMittal has finally won the bid for bankrupt Essar Steel, despite last-ditch attempts by the Ruia family, promoters of Essar Steel Ltd, to eject ArcelorMittal out of the insolvency resolution process with an offer to repay Rs54,389 crore to creditors.
The Committee of Creditors (CoC) for Essar Steel selected ArcelorMittal's bid late last night even as shareholders of the bankrupt company made the last minute settlement offer to bypass the Insolvency and Bankruptcy Code (IBC).
In a press statement on Thursday, shareholders of Essar said they are willing to pay Rs54,389 crore to creditors. The company said Essar shareholders will offer upfront cash payment of Rs47,507 crore to all creditors. This included Rs45,559 crore to the senior secured financial creditors.
Essar Steel owes its financial and operational creditors Rs 54,394 crore as per data provided by the resolution professional on the company’s website.
The CoC, which had already selected the Lakshmi Mittal company as preferred bidder, finally accepted the companies’ revised offer of upfront payment of Rs42,000 crore.
ArcelorMittal’s offer trumped Vedanta’s upfront offer of Rs35,000 crore, while VTB-backed Numetal remained ineligible.
ArcelorMittal today announced Essar Steel India Limited’s Committee of Creditors has voted to approve the company’s acquisition of ESIL. ESIL’s resolution professional, on behalf of the CoC, has issued the company with a letter of lntent (LOI) stating that the company has been identified as the ‘successful applicant’.
ArcelorMittal’s resolution plan for Essar Steel includes an upfront payment of Rs42,000 crore ($5.7 billion) towards ESIL’s resolution debt, with a further Rs8,000 crore ($1.1 billion) of capital injection into ESIL to support operational improvement, increase production levels and deliver enhanced levels of profitability.
ESIL is an integrated flat steel producer, and the largest steel company in western India. Its current level of annualised crude steel production is 6.5 million tonnes. ESIL also has iron ore pellet facilities in the east of India, with current annual capacity of 14 million tonnes per annum.
ArcelorMittal intends to increase ESIL’s finished steel shipments to 8.5 million tonnes over the medium-term. The company aims to achieve this by initially completing ongoing capital expenditure projects and infusing expertise and best practice to deliver efficiency gains, and then through the commissioning of additional assets, while simultaneously improving product quality and grades to realise better margins.
The revival plan will be anchored on a “long-term aspiration to increase finished steel shipments to between 12 and 15 million tonnes through the addition of new iron and steel making assets,” ArcelorMittal stated.
ESIL’s corporate insolvency process must now be formally accepted by the National Company Law Tribunal (NCLT) before completion, which is expected before the end of 2018.
After completion, ArcelorMittal will jointly own and operate ESIL in partnership with Nippon Steel & Sumitomo Metal Corporation, Japan’s largest steel producer and the third largest steel producer in the world, in-line with the joint venture formation agreement signed with NSSMC on 2 March 2018. ArcelorMittal and NSSMC expect to finance the joint venture through a combination of partnership equity (one-third) and debt (two-thirds), and ArcelorMittal anticipates that its investment in the joint venture will be equity accounted.