LN Mittal’s ArcelorMittal and state-owned Steel Authority of India (SAIL) are exploring a joint bid for Bhushan Steel, the distressed company referred to the National Company Law Tribunal, Moneycontrol has learnt from two independent industry sources.
Both ArcelorMittal and SAIL had separately submitted their expressions of interest for the Bhushan asset. While the LN Mittal-headed company had shown its interest in October last year, SAIL was a last entrant in the race, throwing its hat in the ring only in December.
While the new development has created a buzz in the industry, sources in banking circles admitted that there is a strong possibility of the two steel majors joining hands. “ArcelorMittal has shown interest in buying and the government-owned SAIL needs money to buy. A joint bid makes sense,” a senior banker told Moneycontrol.
Though SAIL might not be in pink of health, its legacy in India makes it well placed when it comes to handling domestic operations. A partnership with SAIL would also be backed by the government. “With SAIL’s backing, ArcelorMittal will find it comfortable and easier to deal with the bidding process and, possibly clinching the deal. One has the government tag and the other has global expertise,” said an industry person aware of the development. Despite trying for more than a decade, ArcelorMittal's presence in India is only through its stake in Uttam Galva Steels, which is now in the process of being referred to the NCLT.
ArcelorMittal, the world’s largest steelmaker, brings with it financial prowess and years of experience in making acquisitions work. The company, which produced 90 million tons of steel last year, had a turnover of $56.8 billion in 2016, with a net income of $1.8 billion.
Though the initial discussions between the two sides have been for Bhushan Steel, there is an option to extend the partnership to Bhushan Steel & Power and Essar Steel, both of which have also been referred to the NCLT.
“These are early days. It is to be seen what form the partnership takes,” said an industry executive.
A senior government official added that it was unlikely that SAIL – which is headed towards third consecutive year of losses – can bid alone for Bhushan Steel. “Just to pay the interest costs, the company needs a cash generation of Rs 5,000 crore,” the official said. SAIL reported a net loss of Rs 2,833 crore in FY17.
While the SAIL spokesperson denied the development, a representative of ArcelorMittal declined to comment.
Playing to strengths
ArcelorMittal and SAIL had recently revived a joint venture to manufacture auto-grade steel in India. The memorandum of understanding for the Rs 5,000-crore project was initially signed in 2015. It was reviewed in 2016, and late last year, Union Steel Minister Birender Singh said that the JV is “almost finalised.” The JV will set up a steel plant with a capacity to produce 1.5 million tons of auto-grade steel a year.
Now the partnership could be extended to include inorganic expansion too. The possible joint bid for Bhushan Steel promises to further heat-up the bidding process. Apart from ArcelorMittal and SAIL, other marquee names such as JSW Steel, Tata and Vedanta Resources are expected to put in bids for Bhushan Steel. The insolvency resolution for the Delhi-based Bhushan Steel, which was initially slated to get over by January 22, has got an extension of 90 days. The extension ranges from the 180 to 270 days, within which the resolution professional must bring out a resolution plan.
Bhushan Steel has an annual capacity of 5.6 million tons. Though claimed to be the country’s biggest producer of cold rolled steel, which is used in white goods and auto sectors, Bhushan has piled up a debt of Rs 46,000 crore. It now has reported net losses in 16 straight quarters. It had a net loss of Rs 3,127 crore in the 2017FY.