ArcelorMittal makes $1.6 bn equity contribution for Essar Steel acquisition

ArcelorMittal's equity contribution for the acquisition of Essar Steel India (now AM/NS India) is $1.6 billion, the company said while announcing its 2019 financial results.

Described as its biggest achievement in 2019, ArcelorMittal said that the acquisition of Essar formed a fifth steel pillar for it. However, in spite of its equity contribution towards the acquisition of Essar, Arcelor's net M&A spend in 2019 was offset by portfolio optimisation including the formation of the shipping joint venture.

Shortly after completion of the $5.7 billion Essar deal, ArcelorMittal signed a deal for sale of 50 per cent shipping business stake to pare debt. The company said on Thursday that its past two years' net M&A impact was $0.2 billion spend.

Arcelor holds 60 per cent in AM/NS India while the rest is with Nippon Steel. Arcelor and Nippon Steel are financing AM/NS India through a combination of one-third partnership equity and two-thirds debt. The debt is held by the joint venture.

ArcelorMittal, on Thursday, reported its lowest level of debt at $9.3 billion as of December 31, 2019 since its merger. This was achieved during a period of strategic growth for the business, both through M&A (completion of the Essar Steel India Ltd acquisition equity contribution) and high‐return value‐added capex, the company said.

"Our target of $7.0bn net debt is now within sight, assuming working capital release at current market conditions and we make more progress on portfolio optimisation then we are optimistic that we can achieve this target by year end 2020," the company added. Gross debt though remained stable at $14.3 billion as of December 31, 2019 compared to September 30, 2019; it increased compared to $12.6 billion in December 31, 2018.

For the quarter ended December, ArcelorMittal has reported a net loss of $1.9 billion compared to a net income of $1.2 billion in the year ago period. However, the global steel major beat street expectations on EBITDA at $925 million for the quarter.

Revenues in 2019 was at $70.6 billion compared to $76 billion in the previous year. Its crude steel production stood at 89.8 million tonnes and own iron ore production at 57.1 million tonnes.

Lakshmi Mittal, ArcelorMittal chairman and CEO said, "2019 was a very tough year, clearly reflected in our significantly reduced profitability. However, our cash generation remained strong helping to reduce net debt to the lowest ever level."

He however added that although market conditions remain challenging, there were encouraging early signs of improvement particularly in core markets of US, Europe and Brazil. "With inventory levels having reached a very low level following a period of de-stocking, we are seeing customers return to the market, supporting an improved pricing environment," Mittal said in the statement.

On Essar, Mittal said, "Having completed the acquisition of Essar Steel India in partnership with Nippon Steel, we have also secured a new opportunity for the group in the fast-growing Indian market." The asset is performing well and offers considerable brownfield potential aligned with the country’s ambition to triple crude steel production over the next ten years, he added.

In its results presentation, ArcelorMittal said, according to January 2020 annualised estimates, production of AM/NS India was running at 7.4 million tonnes, EBITDA was at $0.6 billion run rate and it was cash flow positive.

AM/NS India would reinvest cash to finance turnaround and growth plans. The Paradeep pelletisation plan was currently being expanded by six million tonnes which would take AM/NS India pellet capacity 20 million tonnes by 2021-22.

Captive pellet consumption of AM/NS India by then would account for 70 per cent of the production, providing export opportunities for the remainder, the company mentioned in its presentation. Additionally, there was an optionality in Paradeep to pursue further upside by an additional 3-6 million tonnes of capacity.

Report Card

• 7.4 mn tonnes Production running at annualised
• $0.6 billion Ebitda run rate
• Cash flow positive

(January 2020 estimates annualised)