ArcelorMittal is challenging one of India’s most prominent billionaire families for control of debt-ridden Essar Steel, as its founder Lakshmi Mittal seeks to expand his steel empire to the land of his birth.
Essar Steel, built by the founding Ruia family into one of India’s largest producers of the metal with an annual production capacity of about 10m tons, was forced into insolvency proceedings last year after an extended default.
The case, along with those of several other large steelmakers, is seen as a critical test of a new Indian insolvency regime aimed at ending an era of perceived impunity for controlling shareholders.
On the bidding deadline for Essar Steel on Monday, ArcelorMittal said that it had submitted an offer for the company including a “detailed industrial plan [highlighting] the extensive experience and record of the group in the successful acquisition and integration of under-performing assets”.
For Mr Mittal, landing the distressed producer would represent a homecoming of sorts following previous thwarted attempts to establish steelmaking facilities in India.
The chief executive of the world’s largest steelmaker by sales said Essar provided “a compelling opportunity for ArcelorMittal to enter the high-growth Indian steel market”.
It comes as a recovery takes hold in the global steel industry, following a downturn caused by oversupply that wrought havoc on producers two years ago.
However, Luxembourg-based ArcelorMittal faces a competing bid from Numetal, a new company majority-owned by major Russian bank VTB, and involving the Ruia family, according to a person close to the latter.
They added that the Ruia family representative for the venture would be Rewant Ruia, son of Essar Group co-founder Ravi Ruia, without giving further details. Indian media reports have suggested that Rewant Ruia is the beneficiary of an offshore trust holding a minority stake in Numetal.
India’s government revised the bankruptcy law in November to bar from auctions any entity that has been in default for more than a year, or any person connected to such an entity. The Numetal bid would not fall foul of this rule because Rewant Ruia was not personally involved with Essar Steel, according to the person close to the family.
Brothers Shashi and Ravi Ruia founded Essar as a construction business in 1969, and developed it into one of India’s largest diversified conglomerates.
But they have become emblematic of a period covering much of the past decade, during which some of India’s leading business groups gorged on readily available bank debt to fund capital investment, only to default when returns failed to materialise.
In 2016, Essar sold its prize asset — Essar Oil, owner of India’s second-largest refinery — to a consortium led by Russian state-owned group Rosneft for $13bn, a record-breaking foreign direct investment for India.
Rashesh Shah, chairman of Edelweiss Financial Services, said that the involvement of the Ruia family in the auction process would not necessarily cause concern, provided that a good deal was secured for creditors.
“The ownership has already moved to the banks — I don’t think they will get their asset back cheaply. They’ll have to work hard to get it back,” he said.
ArcelorMittal is also in the process of acquiring the owner of Europe’s largest steelworks, the Ilva business in Italy, with an EU competition ruling due in April.