The partners plan to expand Essar Steel's capacity to up to 20 million tons per annum, from the present 10 million tons per annum
Calling the ArcelorMittal-Nippon Steel & Sumitomo Metal combine an “unbeatable one,” senior executives from both the companies said they will leverage on their global experience to turnaround Essar Steel.
“With both companies joining hands enhances the bid put in by ArcelorMittal’s India unit. We are combining the world’s largest steelmaker with Japan’s largest, which also a leader in technology… it’s impossible to match this capability,” Vijay Krishna Goyal, Chief Executive Officer, ArcelorMittal, told Moneycontrol.
The two companies, that have been partners in the US for over 20 years, have joined hands to back the bid by ArcelorMittal India Private Limited. The bid for the second round of bidding was submitted on Monday.
Other bidders include Numetal and Vedanta Resources.
“Our interest in Essar Steel is part of our global strategy. Partnering with ArcelorMittal for Essar Steel is the best option for us,” the Managing Director of Nippon Steel & Sumitomo Metal’s India unit, Hideki Ogawa, told Moneycontrol on Tuesday.
The executives added that they have a detailed plan to turnaround Essar Steel, which had accumulated nearly Rs 50,000 crore in debt and was referred to the National Company Law Tribunal (NCLT) last year.
“The present capacity of the facility is 10 million tons per annum. It is possible to expand this to 15-20 million tons per annum,” said Brian Aranha, Executive Vice President, ArcelorMittal.
Sources added, the companies “are nearly equal partners, with ArcelorMittal having a slightly higher equity.”
The Essar Steel facility, situated in Hazira, uses different kinds of technology to manufacture steel. This includes the blast furnace route and natural gas-based DRI method.
“We have multiple units spread across the world that use each of these technologies. We can draw the best practices for Essar Steel,” Aranha said.
The food pipe problem
But Numetal’s plan to acquire Odisha Slurry Pipeline infrastructure Limited - the Essar Steel unit that is in the middle of a dispute over its ownership, could make things difficult for the ArcelorMittal-NSSM combine.
It is the largest slurry pipeline in India and is strategic to the Essar Steel plant in Paradip, as it transports iron ore from mines in Odisha to Paradip port.
In early February, Numetal had proposed to buy Odisha Slurry Pipeline from SREI, but the bankers had moved against it. The bankers claimed SREI was not the rightful owner of the company.
“The slurry pipeline is like a food pipe. What will the body do without a food pipe,” said Goyal.
“The bankers have understood the problem. The RP (resolution professional in charge of the Essar Steel auction) knows about it. We are confident that the right people, the lenders under whose custody the asset is, wouldn’t want to jeopardize the auction and that a suitable outcome will be found,” Goyal added.