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ArcelorMittal raises offer for India's Essar Steel as bidding resumes

Top global steelmaker counters Russian rival in high-profile bankruptcy sale

An ArcelorMittal steelworks in Belgium rolls out red-hot plate.   © Reuters

MUMBAI -- ArcelorMittal bolstered its acquisition offer for India's debt-laden Essar Steel as the second round of bidding began Monday, with the world's largest steelmaker mounting a stronger fight against Russian-led front-runner Numetal.

The Europe-based steel group run by Indian billionaire Lakshmi Mittal said in a statement that "the financial terms of the proposal are confidential, but represent a material increase to the previous offers made by the company."

Numetal previously offered 370 billion rupees ($5.1 billion) for Essar Steel, India's fourth-largest steelmaker, which went up for sale after filing for bankruptcy proceedings in 2017.

The winning bidder captures annual production capacity of 10 million tons in India's Gujarat state, or one-tenth of the country's crude steel output in 2017.

ArcelorMittal's upgraded offer includes a commitment to pay 70 billion rupees due to the creditors of Uttam Galva and KSS Petron, two companies that were owned by Arcelor. ArcelorMittal's bidding partner is Japan's Nippon Steel & Sumitomo Metal.

Creditors dismissed ArcelorMittal's earlier bid, finding the company ineligible for managing a local steelmaker that willfully defaulted on debt. Numetal also was found ineligible because the consortium included Rewant Ruia, the son of Essar Group Vice Chairman Ravi Ruia.

The second round of bidding comes after the National Company Law Appellate Tribunal on Friday ruled the Numetal consortium eligible to participate. Two Russian state-owned companies hold a majority in Numetal. The tribunal also asked ArcelorMittal to clear the dues of Uttam Galva and KSS Petron by Tuesday.

Essar was one of the first 12 companies identified by the Reserve Bank of India for immediate bankruptcy proceedings last year. The steelmaker owed banks and creditors around 450 billion rupees.

Essar, like many of the country's steelmakers, was forced into insolvency by a mountain of debt stemming from rising production costs, overinvestment and subdued demand.

Steelmakers made up five of the 12 major accounts referred for insolvency last year by the Reserve Bank of India: Monnet Ispat & Energy, Electrosteel Steels, Essar, Bhushan Steel and sister company Bhushan Power & Steel. The five steel companies together owed banks around 2.09 trillion rupees.

The central bank looks to rid India's economy of stressed assets, which total around 10 trillion rupees, as part of a larger effort to clear the banking system of bad debts that piled up due to decades of slipshod lending. The Reserve Bank of India in 2015 enacted strict instructions on accounting for bad loans. Lenders also needed to comply with global capital adequacy ratios.

As nonperforming loans grew, New Delhi devised the recapitalization program and mobilized the bankruptcy law to clean up the nation's financial system and let state-owned banks raise money from capital markets. The government pledged 880 billion rupees in January as a first tranche of aid to these banks.

Indian lenders now are focusing on restructuring bad assets in the power sector as per rules set in February. Banks had until the end of August to restructure their loans, and they have been given a 15-day extension. Once the deadline hits, lenders would have to initiate insolvency and bankruptcy proceedings against the companies whose loans could not be restructured.

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