The BL Interview. Essar Steel is a test case for the new insolvency law: Lakshmi Mittal

Lakshmi Mittal: ArcelorMittal has been involved in many acquisitions over the past 25 years, including, of course, the merger between Arcelor and Mittal Steel in 2006 to create ArcelorMittal. So complexity and competitiveness is something we are very used to. Each acquisition has its own unique features, and the same is true with Essar Steel. At a simplistic level, this is the sale of a sizeable integrated asset that requires investment and a dedicated plan to improve performance. On that basis, there are parallels with other similar sized assets we have acquired in the past. But what is remarkable here is that this is a test case for the new insolvency law. And as we have seen, the path so far is not straightforward as the previous owners (the Ruia family) are not willing to give up their assets readily. Many are watching to see if the IBC will achieve its objectives of delivering a fair return to creditors and [find] a long-term custodian for the asset that defaulted under its previous owners, in a timely manner. We must have confidence that ultimately the IBC will achieve its aims and the strongest bidders will succeed, in the best interests of Essar Steel.

LM: The resolution process for Essar Steel, like in other IBC cases, has clearly had its challenges, and the timetable has already been extended once. From what I have seen, those running the process are doing their best to adhere to it and keep it on track, but we are seeing many twists and turns, often legal, which are impacting the ambitious original timetable. But we are encouraged by the fact that we are now at a stage where the committee of creditors (CoC) has had a chance to review our bid, allowing us to engage with them on the issue of eligibility.

The IBC itself is a significant reform for India’s banks which will impact the perceptions and confidence of investors in India and abroad. Getting it right is critical to the success of the country’s financial and economic reforms.

However, we are still in the early days and there are stresses and tensions of this new standard that is being tested, and which will hopefully be resolved over time. (Section) 29A in particular has caused unexpected consequences and I would expect to see amendments being implemented, though the spirit of the law is clear. In reality, it is creating a lot of confusion and delay.

LM: I certainly would not describe it as a last chance, but it is a great current opportunity for us to establish a meaningful presence in India. And our conviction is that ArcelorMittal is the most credible and suitable custodian for this asset. Essar Steel would benefit from an owner that has the expertise to set the company on a successful track for the future — that means a proper industrial company with management that knows how to generate value from a steel plant not just for today, but for the longer term.

We really believe that together with our partner, Nippon Steel, we can bring a lot of value to Essar in alignment with the government’s ‘Make in India’ policy and its desire to triple steel-making capacity by 2030. We also have an MoU with SAIL to construct an automotive steel plant in India, similar to the successful VAMA joint venture in China, and both parties continue to progress in that project.

AM: At present there are only two bids being evaluated: that of ArcelorMittal and Nippon, and that of the Numetal consortium. I certainly don’t think only foreign companies can triple the country’s capacity to 300 million tonnes. But if you work on the basis of replacement cost of around $1000 per tonne — and that is conservative — then you are looking at an investment of $200 billion over the next 12 years to reach the target. That’s a lot of investment for 3 or 4 companies to make.

AM: I prefer not to comment on the financial details of our offer at this stage in the process.

Let us just say that we could not have predicted it would play such a big role in a bankruptcy process for an unrelated asset.