ArcelorMittal is used to operating under difficult conditions. After all, the world’s largest steelmaker was created by a hostile deal. As the Mittal family in charge returns to the acquisition trail with a $6 billion bid to buy Essar Steel out of insolvency, they start again in an inhospitable place.
The $33 billion company teamed up with Japan’s Nippon Steel & Sumitomo Metal to enter India, a market it has eyed for a decade. This follows a 1.8 billion euro deal to buy Italy’s Ilva. Both transactions are manageable. Luxembourg-based ArcelorMittal could fund most of its share of Essar with the cash it will generate this year, Standard & Poor's estimates.
Ambitions to expand into India were put on hold with the 2008 commodity-price downturn. In 2013, ArcelorMittal scrapped a plan to build a plant in Odisha because of permit delays. Buying nearly 30 per cent of Uttam Galva Steels ended with the Western Indian company unable to pay back loans.
Essar holds greater promise. Steel demand has been recovering, and India's per-capita consumption is low, leaving lots of room for growth. ArcelorMittal plans to increase the capacity of Essars Hazira plant. Over time, it can shift the focus from construction to higher-value products that feed into the more auspicious automotive sector.
ArcelorMittals stake in Uttam Galva, though offloaded earlier this year, remains a complicating factor. With tough rules preventing large shareholders of defaulting companies from buying stressed assets, there is a question over the eligibility of ArcelorMittals offer.
Another concern is the rival Numetal consortium led by Russian bank VTB, which includes the son of one of Essar's top backers. The same group tried to buy a pipeline that supplies Essars Odisha steel plant, an acquisition put on hold last month by a Delhi court. There is also uncertainty over whether, and on what terms, a buyer will be able to keep using nearby ports and power facilities of the wider Essar group.
Throw in India's notorious red tape and the whole situation would be a turnoff for practically any steelmaker with less experience doing deals in difficult conditions. For ArcelorMittal, it is just another day at the office.
Una Galani is a Reuters Breakingviews columnist. The opinions expressed are her own; @ugalani
Context news - ArcelorMittal, the world's largest steelmaker, said on March 2 it would form a joint venture with Japan's Nippon Steel & Sumitomo Metal to bid for bankrupt steelmaker Essar Steel India. - The Luxembourg-based company said it submitted a plan on Feb. 12 to India's National Company Law Tribunal, which deals with insolvency and company disputes, to bid for Essar in partnership with Nippon Steel. - Essar was one of a dozen of India's biggest debt defaulters pushed into bankruptcy court last year by an order from the central bank |