Arcelor eyes December takeover of Essar Steel

European steel producer ArcelorMittal expects to finalise its acquisition of its Indian 10mn t/yr counterpart Essar Steel by the end of December, with its resolution plan for Essar's bankruptcy approved by India's Supreme Court on 15 November.

The Supreme Court's approval of the resolution plan is the final procedural step in Essar's corporate insolvency process, said ArcelorMittal.

ArcelorMittal will operate Essar in a joint venture with Japan's Nippon Steel. Both companies will promptly proceed with the acquisition of Essar based on the approved resolution plan, said Nippon Steel. ArcelorMittal will own a 60pc stake in Essar while the rest will be held by Nippon Steel. Both companies will have equal representation and voting rights in unlisted Essar's board of directors.

Essar, which produces crude steel based on a mix of coal and natural gas-based furnaces, will provide ArcelorMittal and Nippon Steel with a share of India's fast-growing steel markets. Essar's steel production has been complicated by a shortage of natural gas over the past few years, although it has increased its output over the past year as gas supplies increased.

Essar's 20mn t/yr pellet producing capacity will provide an export opportunity for the new owners as demand for Indian pellet is on the rise in China, the Middle East and Europe. Essar has been a sporadic exporter of pellet with few cargoes put on the seaborne market in the past year.

ArcelorMittal and Nippon will also become the first foreign majority owners of a primary steel producer in India and could intensify the competition in the lucrative flat steel market. Essar, along with Tata Steel, Sail and JSW, are the main producers of hot and cold-rolled products, used in the auto, construction and appliances sectors. Nippon Steel and ArcelorMittal have significant relationships with global auto producers, which could be leveraged by these companies to give them a bigger pie of the auto steel market. While car sales in India have remained sluggish for more than a year, the market potential remains significant because of the country's economic growth and growing population.

India's bankruptcy resolution process for stressed steel assets was started in 2017 with five steel mills being put up for auction by creditors to recover what they owed. While all five mills have found new owners, underlining the viability of India's steel sector, JSW's acquisition of Bhushan Power & Steel may continue its legal process because of allegations of fraud against Bhushan's founders. Electrosteel Steels has been acquired by Vedanta, Bhushan Steel has been bought by Tata Steel and Monnet Ispat has been acquired by JSW Steel.

By Prasenjit Bhattacharya