ArcelorMittal's proposal for Essar Steel includes a plan to increase the plant's capacity from its current nameplate capacity of 10 million tonnes.
Brian Aranha, executive vice president and head of strategy at ArcelorMittal said that Essar Steel was a large facility and there was scope to grow the plant even bigger. Asked to what extent it was possible to ramp up capacity at Essar, he declined to divulge details citing confidentiality clause of the proposal, but said, it was part of the plan submitted by the company. Aranha was part of the team that had done due diligence of Essar Steel plant.
Industry sources, however, said, it was possible for Essar Steel to ramp up capacity to 15 million tonnes which was at one point part of the company's corporate plan.
Aranha said that Essar was a unique collection of assets with all its facilities, the pellet plant, arc furnaces and Corex operations all of which fit into ArcelorMittal's scheme of things.
ArcelorMittal has 36 electric arc furnaces and iron ore production of 57.4 million tonnes. Essar Steel's manufacturing facility comprises ore beneficiation, pellet making, iron making, steel making, and downstream facilities including cold rolling mill, galvanising, pre-coated facility, steel processing facility, extra wide plate mill and a pipe mill.
Aranha said, ArcelorMittal had world class capabilities to operate those sides. "We have a brand name that is known across the world, cutting-edge technology and research capabilities probably better than any potential competitors," he said. In the global automotive market, ArcelorMittal has a 17 per cent market share.
Aranha also talked about ArcelorMittal's turnaround experience in Poland, Czeck Republic and Kazakhstan. The turnaround experience is relevant in the case of Essar Steel which is facing bankruptcy. It owes banks around Rs 440 billion and is one of the 12 cases mandated by the Reserve Bank of India for insolvency.
ArcelorMittal is going all out for Essar Steel largely because of a foothold in a growing market. "The growth in the Indian market in the next 10 years would probably not be seen in any other market," Aranha said. ArcelorMittal had tried in the past to set up mega greenfield projects in India but none of it materialised. Aranha explained that thereafter the global economy was not conducive but Essar Steel provided the opportunity now.
However, ArcelorMittal's bid for Essar Steel is facing the crucial eligibility test, as is the bid from its competitor, Numetal.
The issue with ArcelorMittal is that it held a 29.05 per cent stake in Uttam Galva Steels as a co-promoter, which is now a non-performing asset for more than a year. The amendment to the Insolvency and Bankruptcy Code (IBC) allows a promoter to submit a resolution plan if it makes payment of all overdue amounts with interest.
On Febuary 7, before submission of Essar Steel bid, ArcelorMittal, however, had transferred its entire shareholding in Uttam Galva by way of inter-se transfer at Re 1 a share. ArcelorMittal has also maintained that it did not have board representation or was not in the management of Uttam Galva.
The competing bid from Numetal also faces eligibility test. Numetal is 40 per cent owned by the VTB group and 25 per cent by an offshore trust where Rewant Ruia, son of Ravi Ruia, is a trustee. Ravi Ruia co-founded the Essar group along with brother Shashi Ruia.
A decision on eligibility is expected to be reached by March 5 when the resolution professional is supposed to meet the lenders. But the date could also be extended. The bids for Essar Steel were submitted on February 12.