ArcelorMittal, Nippon Steel complete acquisition of India’s Essar Steel

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It may have taken well over 850 days for its culmination, but the recent completion of an acquisition in India is being touted as the “single-biggest recovery” under the Insolvency and Bankruptcy Code (IBC) process in India.

Earlier this week, global steel giant ArcelorMittal announced it had formally completed the acquisition of debt-ridden Essar Steel India Ltd (ESIL).

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Going ahead, the LN Mittal-led company also announced a joint venture with Nippon Steel, called AM/NS India, to own and operate the debt-ridden Essar.

ArcelorMittal holds 60% of AM/NS India, with Nippon Steel holding the balance.

Last month, the Supreme Court of India cleared the decks for the acquisition of Essar, which is mired in multimillion-dollar debt.

On taking over, the co-owners have announced their resolve to “play an active role in the Indian steel market.” They have decided to step up capacity at the plant from the current 9.6 million ton per annum (mtpa) to 12 or 15 mtpa, according to LiveMint.

As widely reported in the Indian press, Lakshmi Mittal, chairman and chief executive of ArcelorMittal, said this acquisition was an “important strategic step for ArcelorMittal.” India, he added, was an attractive market, and ArcelorMittal had been on the lookout for opportunities to build a meaningful production presence in the country for over a decade.

What attracted it to ESIL was its sizable, profitable, well-located operations.

Incidentally, AM/NS India is an integrated flat steel producer and the largest steel company in western India. Its current level of crude steel production is about 7.5 mtpa against a 9.6 mtpa capacity.

Following the completion of the acquisition process, ArcelorMittal has initiated payment of the dues. Payment from ArcelorMittal has started flowing, with all payments likely to be cleared soon, Business Today reported.

For many years, AM/NS has been investing in countries like the U.S., Brazil and Japan. Its India plans include an intention to increase finished steel shipments to 8.5 mtpa over the medium term, The Hindustan Times reported. This will be achieved 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 realize better margins, the company said in a statement.

The promise after this major acquisition of adding more steel to India’s total production may all be fine — but in the face of a slow growth, what will this additional capacity do to it is a question on every analyst’s mind.

Domestic steel prices have fallen by around 10% since the start of 2019. Domestic demand has also slowed, and is estimated to fall to 4-5% this fiscal from the 7.5-8% growth recorded in the previous two years, given muted construction investments and weak automotive market,” according to Crisil.

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All hopes are now pinned on an infrastructure boost promised by the Indian government as part of a larger package aimed at spurring economic growth, which, in turn, could fuel steel consumption.

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