India’s bankruptcy court NCLT approves ArcelorMittal’s takeover of Essar Steel

India’s bankruptcy court National Company Law Tribunal (NCLT) approves ArcelorMittal’s takeover of 10 million tonne steel plant of Essar Steel

ArcelorMittal confirmed the National Company Law Tribunal (NCLT) had approved the takeover of the 10 million tonne steel plant of Essar Steel by itself and Japan’s Nippon Steel & Sumitomo Metal Corp, paving the way for the first major foreign participation in India’s steel sector.

– TFM Watch

(Reuters) – India’s bankruptcy court on Friday approved global steel giant ArcelorMittal SA’s bid for debt-ridden Essar Steel, potentially ending months of court battles and opening the country’s steel industry to outsiders.

ArcelorMittal confirmed the National Company Law Tribunal (NCLT) had approved the takeover of the 10 million tonne steel plant of Essar Steel by itself and Japan’s Nippon Steel & Sumitomo Metal Corp, paving the way for the first major foreign participation in India’s steel sector.

ArcelorMittal has been trying to enter India’s fast-growing steel market, which is dominated by local companies, for over a decade but bureaucratic hassles and land acquisition woes stifled its bids.

“We welcome today’s pronouncement by the NCLT Ahmedabad,” ArcelorMittal said in a statement. “We hope to complete the transaction as soon as possible.”

Essar Steel, with debts of 50.78 billion rupees ($725.38 million), was among the so called dirty dozen – twelve large steel and other infrastructure companies which defaulted and were referred to India’s bankruptcy court in 2017.

The company became synonymous with the tardy pace of debt resolution by Indian banks saddled with billions of dollars of bad loans.

When a new bankruptcy law was introduced in 2016 by Prime Minister Narendra Modi, it was seen by investors as a bold move which would ease lending pressure on banks and boost private investment.

However, three years later, most large cases are still languishing in the courts or yet to be resolved – bad news for Modi who is seeking re-election in a month’s time amid border tensions and growing discontent due to high unemployment.

The NCLT approved ArcelorMittal’s bid in October, even as Essar’s founders – the billionaire Ruia family – tried to hold onto the company, offering 543.89 billion rupees to clear its debts.

“We continue to believe that our settlement proposal…is the most compelling one available to Essar Steel creditors,” Essar said in a statement on Friday.

“We are awaiting a copy of the NCLT order, and will take a call on next steps after examining the same,” the statement added.

The case between ArcelorMittal and the Ruia family reached the Supreme Court in January, with Essor’s debt resolution process lasting around 600 days in total.

Local steel giant JSW Steel Ltd and mining conglomerate Vedanta Ltd also bid for the western Indian steel plant.
ArcelorMittal said in October the company would pay a total of 420 billion rupees ($5.73 billion) towards Essar Steel’s debt and put another 80 billion rupees into operations and profitability.

Source: Reuters

– TFM Watch

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ArcelorMittal said it is facing risks like excess capex on proposed Essar acquisition

ArcelorMittal says facing ‘risks’ like excess capex on proposed Essar acquisition

The company said it provided a $567 million performance guarantee in connection with the execution of the resolution plan.

TFM Watch

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ArcelorMittal on February 25 said it is staring at various risks including excess capex and delays in achieving commercial objectives in view of its proposed acquisition of debt-laden Essar Steel India. The world’s largest steelmaker ArcelorMittal’s takeover proposal of the Essar Steel India Ltd (ESIL), via a joint venture with Nippon Steel & Sumitomo Metal Corporation (NSSMC), in a bankruptcy resolution process has been approved by the committee of creditors (CoC) and is pending before the National Company Law Tribunal (NCLT).

“Should the Resolution Plan be implemented, as is currently expected, it would subject ArcelorMittal to various risks. On the operational front, the industrial project to turnaround ESIL and further improve operational profitability is large-scale and ambitious,” ArcelorMittal said in its annual report released today.

It said while the company has “substantial experience in turnaround situations”, the scale of this one is particularly large and it is the company’s inaugural large-scale acquisition in India, an emerging market.

“Capital expenditure in excess of budgeted amounts, delays and difficulties in achieving commercial objectives therefore cannot be ruled out,” the company said.

The risks in this respect are compounded to an extent by the fact that ESIL is emerging from bankruptcy and it will be owned and operated by a joint venture with attendant risks around strategic alignment, potential discord and deadlock, the report underlines.

“On the financial front, there are uncertainties and risks in respect of ArcelorMittal’s exposure (via equity investment in the joint venture and possible guarantee of the joint venture’s debt),” it said.

While ArcelorMittal and NSSMC currently expect to finance the joint venture through a combination of partnership equity (one-third) and debt (two-thirds), the exact ratio has not yet been determined, and the nature of the long-term debt financing of the joint venture has not yet been defined including, whether and/or what amounts will be guaranteed by ArcelorMittal and NSSMC, it added.

Pending the implementation of long-term financing, ArcelorMittal will guarantee any amounts drawn by the joint venture under the bridge financing, it said.

“The JV’s proposal, set out in a resolution plan detailing among other things the amount to be paid to existing creditors and towards capital infusion (totaling USD 6.8 billion and including approx USD 340 million of guaranteed working capital adjustment) and the improvements and related capital expenditures (totaling USD 2.8 billion) to be made over the medium-term, has been approved by the creditors’ committee and is pending final judicial review,” it said.

The company said it provided a $567 million performance guarantee in connection with the execution of the resolution plan.

Initial financing for the debt repayment and equity infusion has been secured through a $7 billion term facility (or bridge financing) agreement, it added.

Essar Steel owns a 10-million-tonne steel mill in Gujarat.

ArcelorMittal is the world’s leading steel and mining company, with a presence in 60 countries and an industrial footprint in 18 countries.

Source: PTI

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