Essar's US unit files for bankruptcy

The filing follows Minnesota's decision to revoke Essar's mineral leases for non-payment of dues worth $66 mn

In a setback, the Ruia family-owned Essar Steel Minnesota (ESML) has filed for Chapter 11 bankruptcy protection in the United States.

The filing follows Minnesota government’s decision to revoke Essar’s mineral leases for non-payment of dues worth $66 million. Essar had sought extension of leases for another nine months. The mineral leases will now be allotted to Essar’s rival companies. Essar’s American unit, owned by London-based Ruia holding company, has $1 billion debt.

In 2007, Essar had said it would set up a $1.8-billion unit in Minnesota, but scaled down from a full-scale taconite steel mill project to pellet plant after the 2008 financial crisis.

The project was scheduled to start production from 2014 onwards. But cheap supply of steel from China made production unviable. Another North American Essar unit, Essar Steel Algoma, is also bankrupt and its steel mill is up for sale, according to media reports.

Essar group did not comment on the bankruptcy filing till this paper went to press. . Another India based group, Tata Steel, is facing a similar crisis with its British steel mill operations which are losing 1 million pounds a day. On Friday, Tatas decided to hold the sale and look for other alternatives.

Back home, the Essar group is in talks with Rosneft to sell its 49 per cent stake in refinery for $2.8 billion in cash. It will sell another 25 per cent stake in the refinery to a commodity trader at a similar valuation. Funds raised from the sale will be used to reduce the group’s India debt of Rs 88,000 crore. The group says post refinery stake sale, its debt will reduce by half.

After the Indian government imposed restrictions on steel imports from China, Essar Steel has ramped up steel production at its Hazira, Gujarat plant to 70 per cent. Its earlier plan to sell 30 per cent stake in Essar Steel failed as there were no takers.