February 14, 2018 3:19 am JST

ArcelorMittal enters bidding duel for India's Essar Steel

World's top steelmaker to vie with Russian-led contingent for indebted company

AKIRA HAYAKAWA, Nikkei staff writer

ArcelorMittal has turned its sights on India's growing market after a pause in acquisitions amid slumping steel prices. © Reuters

MUMBAI -- ArcelorMittal, the world's biggest steelmaker, has offered to acquire India's struggling Essar Steel, pitting the multinational against a Russian-led group as of Monday in bidding for the debt-laden company.

Essar Steel, a member of India's Essar Group conglomerate, is a major domestic player whose annual crude steel capacity nears 10 million tons. In past years, the company invested aggressively toward raising output, but a slump in the market dented earnings. The steelmaker posted net losses for six of the seven years through March 2017 and landed deeply in debt. It is being sold off under the country's insolvency process.

ArcelorMittal intends to rebuild Essar Steel by using an Indian subsidiary to make the purchase as well as the capital investments. "Essar provides a compelling opportunity ... to enter the high-growth Indian steel market," said Lakshmi Mittal, chairman and CEO of ArcelorMittal.

India ranked as the third-largest crude steel producer behind China and Japan in 2017, churning out 101.4 million tons for a 6.2% annual gain, the World Steel Association reports. At the current pace of growth, India will surpass Japan as early as this year.

ArcelorMittal's "industry expertise and renowned operating prowess" make it "uniquely equipped to implement a successful turnaround which would be beneficial to Essar's stakeholders," Mittal claimed.

The multinational's sole competitor in the bidding war is a special-purpose entity led by Russian lender VTB Capital, with backers including an Essar Group founding member and one or more existing stakeholders in Essar Steel. India's Tata Steel and Japan's Nippon Steel & Sumitomo Metal reportedly considered placing bids, but apparently decided otherwise by Monday's deadline. Both companies declined to comment in phone inquiries by the Nikkei Asian Review.

ArcelorMittal, though led by the Indian-born Mittal, has grown mainly outside that country. Mittal began with an Indonesian steel mill, then snapped up struggling steelmakers in regions like Central America and former Soviet bloc countries, and eventually the U.S., on the way to securing the top spot worldwide. In 2006, the company bought European steelmaker Arcelor -- then No. 2 -- to become the massive multinational it is today.

The market leader produced 93.1 million tons of crude steel last year -- mainly in Europe, with the Americas and former Soviet republics also contributing heavily. ArcelorMittal's scale turned into a burden as steel prices cooled in 2014 to 2016, leading to deep losses, but the company has recovered amid improvements in the market. For the year ended in December, net profit more than doubled to $4.56 billion, marking a second straight year in the black.

While striving to improve management efficiency, ArcelorMittal also returned to its time-honored strategy of acquisitions. In June, it won the bidding for Italian steelmaker Ilva, with outlays for the acquisition and planned capital investment expected to reach at least 4 billion euros ($4.93 billion) combined. However, the deal remains on hold due to an investigation by the European Commission over antitrust concerns.

Nikkei staff writer Kosei Fukao in Frankfurt, Germany, contributed to this article.

Nippon Steel & Sumitomo Metal Corp.

Japan

Market(Ticker): TKS(5401)
Sector:
Industry:
Non-Energy Minerals
Steel
Market cap(USD): 23,092.79M
Shares: 950.32M
Asia300

Tata Steel Ltd.

India

Market(Ticker): BOM(500470)
Sector:
Industry:
Non-Energy Minerals
Steel
Market cap(USD): 12,082.4M
Shares: 1,126.61M

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