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tycoons-set-to-remake-india-steel-as-$26-billion-battle-heats-up

    tycoons

    By George Smith Alexander, Anto Antony and Swansy Afonso

    Surging steel prices and a new Indian insolvency law have set the stage for an industry-defining battle between tycoons and producers for more than $26 billion of the sector's most-coveted assets.

    Creditors are seeking the approval of India's new bankruptcy court to sell assets of as many as 40 firms, including steel producers. That's spurred Lakshmi Mittal, head of the world's largest maker of the alloy, and fellow billionaire Anil Agarwal to vie for control of Essar Steel India Ltd., according to people with knowledge of the matter. Debt-laden Bhushan SteelBSE -0.16 % Ltd. has drawn interest from Japan's and India's biggest producers, said the people, who asked not to be identified because the information is private.

    Insolvent producers including Monnet Ispat & Energy Ltd. are attracting potential bidders as prices of the material soar and creditors embark on the first significant test of a bankruptcy law that's intended to encourage asset sales. Several deep-pocketed suitors have made expressions of interest for the Indian mills and some have already submitted bids for a series of deals with deadlines around year-end, according to the people.

    "It just can't get better than this in India in terms of size or valuation in fully-baked assets," said Pooja Dutta, managing partner at Mumbai-based Astute Law. "At a time when too much capital is chasing too few opportunities across the globe, steel mills are set to see a bidding war as long as sales are executed in right and transparent manner."

    Four makers of the alloy are among India's so-called " dirty dozen" -- debtors that the central bank has ordered be taken through the bankruptcy courts. Essar Steel, Bhushan Steel, Monnet Ispat and Electrosteel Steels Ltd. owe more than $26 billion combined, the people said.

    Indian producers added leverage to fund expansion plans when the economy was growing at a much faster clip. The debt soured as economic activity slowed and demand for the alloy waned amid oversupply from China.

    Creditors, armed with the new insolvency and bankruptcy law, are seizing this opportunity to get repaid. Suitors see the potential purchases as a way to acquire a bigger share of a steel market that's forecast to produce more than 100 million tons this fiscal year.

    "This level of bidding interest from such a wide range of investors, from strategics to private equity firms, for such large operational assets has been very rare in this country," said Rethish Varma, a Bengaluru-based researcher at MarketSmith India.

    There's a lot at stake. Essar Steel's 10-million-ton capacity, in particular, could immediately give a new entrant a sizable presence in an industry expected to benefit from India's plan to invest trillions of rupees in infrastructure upgrades, creating ' Smart Cities' across the country. The producer is currently restructuring its roughly 450 billion rupees of debt or about 770 billion rupees including debt owed by subsidiaries, the people said.

    Capacity Sought

    Essar Steel has attracted suitors including ArcelorMittal, the world's largest producer, and Agarwal's Vedanta Ltd., according to the people. Neither company owns significant steel-producing assets in the country.

    A spokesman for ArcelorMittal said in response to Bloomberg queries that "members of our management team are conducting due diligence on steel assets available through the current insolvency process."

    "As a process, we do assess and evaluate various strategic opportunities for growth," a spokesman for Tata Steel said.

    The billionaire Jindal family's JSW Steel Ltd., which is also considering offers for assets, recently overtook Steel Authority of India Ltd. to become the biggest maker of the material that's used in everything from automobiles to skyscrapers.

    With production capacity in demand, Bhushan Steel -- whose mills can produce 5.6 million tons of the alloy -- has drawn interest from Apollo Global Management-backed Aion Capital Partners Ltd., in addition to Nippon Steel & Sumitomo Metal Corp. and JSW, the people said. Vedanta and Tata Steel are also weighing bids, they said.

    "On the path to India's aspirations to have 300 million tons capacity, we will see restructuring of the industry, which would primarily involve mergers and acquisitions," said Sanak Mishra, an independent steel consultant who was the former secretary general of the Indian Steel Association. "This would enable the industry to have better finances and better business."

    Operational Assets

    Representatives for Essar Steel, Nippon Steel, JSW, VTB Capital and Aion Capital declined to comment, while representatives for Bhushan Steel, Electrosteel, Monnet Ispat, Vedanta, Dalmia Cement and SAIL didn't respond to requests for comment.

    Aion Capital along with JSW Steel are the only bidders for Monnet in the second round of bids, with lenders expected to decide on a sale as early as this week, the people said.

    "Strong domestic demand and protectionist measures by the government makes operational steel mills an asset to vie for," said Varma.

Source: Economic Times