The homecoming of Lakshmi Mittal: A story of long waiting periods

The Supreme Court cleared the decks for ArcelorMittal’s acquisition of Essar Steel on Friday by bringing closure to a corporate insolvency resolution process that has stretched for more than 835 days. Mapped against the waiting period of over a decade to enter India, 835 days could pass off as a fragment of time.

Lakshmi Mittal’s first attempt to bring home ArcelorMittal was in 2005. Amid much fanfare, the company signed a deal with Jharkhand chief secretary P P Sharma for a 12 mt steel plant at a cost of Rs 40,000 crore. But even a year later, nothing moved — neither on the allocation of iron ore, nor land. Disappointed, Mittal landed in Odisha. Another deal and the usual exuberance followed. Yet, a foothold in the market remained a distant dream.

“In a project of this nature, majority of the time spent is on land, mines, right of way, waterway and everything else. That is not the case in other countries,” said Malay Mukherjee, who handled several acquisitions as a board member of ArcelorMittal till 2008. He was, in fact, a signatory to the Odisha MoU from the ArcelorMittal side.

After Odisha, in 2010, the company signed an MoU with Karnataka. “They got the land but the permission for waterway was pending,” said a source. In the meantime, the delays forced the company to pull out many of its officials from India, what at the peak of activity ran into hundreds.

With the greenfield projects not going anywhere, ArcelorMittal bought 33.8 per cent stake in Mumbai-based galvanised steel maker Uttam Galva Steels in 2009. 

However, Uttam Galva was still a fringe player and ArcelorMittal wanted a bigger pie in a growing market. The window of opportunity came when the Narendra Modi-led government came up with the Insolvency and Bankruptcy Code to tackle rising non-performing assets.

ArcelorMittal made a bid for Essar Steel in February 2018. It’s been a wait since as court battles followed with the promoter trying to regain control and the world’s largest steelmaker having to go through an eligibility test under the insolvency laws.

The first win came when the creditors decided in favour of its resolution plan and declared it the preferred bidder. It’s been more than a year from there when it finally seems that the company can complete the process.

In the interim, the steel market has turned. “There is a clear change in market environment since the bid was made and the market today,” said Mukherjee.

According to Fitch, it could put pressure on leverage in the mid-term. Steel prices have tumbled by more than $100 a tonne in the last six months. Sources, however, pointed out that steel was a cyclical industry and Essar was performing well. Resolution professional Satish Kumar Gupta said, “Essar Steel had achieved its highest production and Ebidta during the CIRP period with the cooperation of all stakeholders against odds.”

However, Mukherjee said the beginning would be challenging and the competition tough. “But ArcelorMittal’s expertise lies in acquiring companies.” In the past 25 years, Mittal has led about a dozen acquisitions to build a global steel empire that’s a shade shy of India’s crude steel production and about 5.5 per cent of the world’s.

(With inputs from Bloomberg)