AM/NS bulks up for the future, focuses on acquisitions to secure infra

The entry of ArcelorMittal Nippon Steel India (AM/NS India) into India’s league table for steel was noisy, with the world’s largest steelmaker locked in an intense legal battle with the Ruias, promoters of Essar Steel, for more than two years to gain control of the company under India’s nascent insolvency law.

Three years on, the 60:40 joint venture of the world’s leading steelmakers is bulking up by acquiring a string of assets connected to its operations and ring-fencing future expansion.

Nearly Rs 90,000 crore worth of capital expenditure has been incurred so far on various asset acquisitions and projects, with a major investment of about Rs 42,000 crore on the acquisition of Essar Steel, Amit Harlalka, deputy chief financial officer, AM/NS India, said.

“Additional investments were made to secure strategic infrastructure assets (port and power), a slurry pipeline, and downstream value added products in order to make AM/NS India operations self-reliant,” he added.

The infrastructure assets were not part of Essar Steel’s insolvency resolution process but allied and critical to AM/NS India’s operations.

The Odisha Slurry Pipeline (OSPIL), for instance, owns a 253-km pipeline connecting AM/NS India’s iron ore beneficiation plant in Dabuna with the pellet plant in Paradip, Odisha, and the Supreme Court recently approved a resolution plan submitted by ArcelorMittal India Pvt Ltd as part of an insolvency resolution process.

Then, the power assets included a 500-Mw captive gas-based power plant at Hazira, acquired from secured creditors. A 60-Mw thermal power plant located in Paradip was acquired under the SARFAESI Act, a debt recovery law, to meet power requirements of operations there.

The big one, however, came in August this year, when AM/NS India and the Ruias finally signed an agreement to buy infrastructure assets — ports, power plants and a transmission line — from the Essar Group for a net value of $2.4 billion (Rs 19,000 crore). About $2.05 billion (Rs 16,500 crore) of that transaction was completed last week.

The ancillary units were an issue even during Essar’s corporate insolvency resolution process (CIRP). Satish Gupta, resolution professional for Essar Steel, recalled that power and ports operations critically required for running the operations of ESIL (Essar Steel India) were in different companies controlled by the promoters, and it was a major challenge in continuing operations and perceived as a poison pill for most acquirers.

“However, group insolvency was not considered by banks since a majority of these companies were not NPAs in their books.”

But as ESIL’s capacity utilisation improved during CIRP, Gupta pointed out, these group companies also started performing well, thereby honouring contracts with ESIL and making it less attractive for them not to cooperate.
 

After the acquisition of Essar, control of the port became a bone of contention and the issue had been tied up in legal wrangles since 2020 when AM/NS India moved the Gujarat High Court. But getting trapped in legal cases could mean years gone by in lost opportunity and AM/NS decided to settle. For the two global majors, India is one of the few bright spots where new steelmaking capacity will be added, going forward.

“Both ArcelorMittal and Nippon Steel are bullish on the growth prospects in India. That is why they acquired Essar Steel. And within three years of acquisition, the company has done the groundbreaking for expansion in upstream,” Dilip Oommen, chief executive officer, AM/NS India, and executive vice-president, ArcelorMittal, said.

As India moves towards achieving its target of 300 million tonne (MT) crude steel production capacity from the current level of 154 MT, AM/NS India’s importance in Arcelor and Nippon’s plans is only expected to grow.

“The Indian operations will be integral to the growth plans of the parent companies that want to remain at the forefront of meeting the substantial rise in steel consumption in India in the coming decades,” Harlalka said.

In line with the parent companies’ goals, AM/NS India’s management is firmly committed to expansion plans that lay emphasis on the production of value-added products, among others, he added.

AM/NS India’s expansion in upstream capacity from 9 MT to 15 MT at a cost of $5.6 billion began at Hazira, Gujarat, the location of its existing steel plant, towards the end of October. With the investment in downstream and debottlenecking of current operations, the amount goes up to a whopping $7.4 billion, expected to be completed by early 2026.

The investment is expected to increase EBITDA capacity by 2.5x (in CY2021, AM/NS EBITDA had stood at $2 billion). Having ownership of the ancillary assets was, therefore, important not just from the point of current operations but future expansion of the fourth largest steelmaker in India.

“Freight cost is one of the largest cost components in steel making since, for every tonne of steel, about three tonnes of raw material are required,” Jayanta Roy, senior vice-president, ICRA, said. “The acquisitions give the company control over movement of raw materials and reduce freight cost.”

But the AM/NS India story is multi-pronged — securing assets connected to its operations through acquisitions and expanding existing operations is one part; there are plans to set up new plants, and acquisition if any, is over and above this.

Earlier this month, AM Mining India, part of the joint venture, completed the acquisition of Uttam Galva Steels, a downstream manufacturer in Maharashtra, under the Insolvency and Bankruptcy Code (IBC) process. The resolution amount including payout to financial creditors, operational creditors and equity infusion was Rs 4,020 crore. AM Mining, incidentally, has also shown interest in Srei, which is undergoing insolvency resolution.

The organic plans go like this: in the medium term Hazira can be expanded to 20 MTPA. For the long-term, the company is assessing setting up a 24 MTPA plant in Kendrapara and a 6 MTPA plant in Paradip, Odisha. Feasibility studies are underway for both. Yet, AM/NS’ big bang plans are no surprise; the top steel producers in the country are on a growth trajectory.

“Among large steel-consuming countries, India is perhaps the only country today where there is a clear visibility on long-term demand growth. In addition, availability of iron ore and cheap labour are attractive value propositions for steel makers,” Roy pointed out.

So, big-ticket expansion totalling around 130 MTPA has been lined up with more than 30 per cent expected to be commissioned in five years. The last such rush to expand steel capacity was possibly in the early part of 2000, though greenfield was the preferred route then. And like many others, ArcelorMittal had also signed up for it — in 2005, an MoU with the Jharkhand government for a 12 MTPA plant and in 2006 with Odisha for a similar sized plant. But they didn’t materialise.

Finally, a major opportunity came knocking when Essar Steel was auctioned under the IBC. And while the battle for Essar spanned over two years, compared to 14 years, it may seem like a fraction of a wait.