Mittal scion ready to battle all odds to win Essar Steel

Aditya Mittal was only 30 when he had convinced his father Lakshmi Niwas Mittal to mount an audacious bid for Arcelor in 2006, and the rest is history. Twelve years on, the president, group CFO and CEO of ArcelorMittal Europe is again leading an equally challenging M&A drill. Sambit Saha of The Telegraph catches up with the Mittal scion in the midst of an unfolding drama over Essar Steel.

By Sambit Saha
  • Published 7.05.18
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Aditya Mittal was only 30 when he had convinced his father Lakshmi Niwas Mittal to mount an audacious bid for Arcelor in 2006, and the rest is history. Twelve years on, the president, group CFO and CEO of ArcelorMittal Europe is again leading an equally challenging M&A drill. Sambit Saha of The Telegraph catches up with the Mittal scion in the midst of an unfolding drama over Essar Steel.

Did you anticipate ArcelorMittal will face so many legal hurdles for the acquisition of Essar? Do you think Indian competitors are wary of ArcelorMittal and, hence, creating roadblocks?

From what I have seen, those running the process are doing their best to adhere to the process and keep it on track but we are seeing many twists and turns, often legal, which are impacting the original timetable. But we are encouraged by the fact that we are now at a stage where the committee of creditors has had a chance to review our bid, allowing us to engage with them on the merits of our offer for the asset as well as the issue of eligibility.

The IBC (Insolvency and Bankruptcy Code) itself is a significant reform for India's banks which will impact the perceptions and confidence of investors in India and abroad, and getting it right is critical to the success of the country's financial and economic reforms. However, we are still in the early days and there are stresses and tensions of this new standard that are being tested, and which will hopefully be resolved over time.

Do you think, in hindsight, it would have been wiser to bid for Bhushan Steel as well to a) hedge the bets b) avoid taking on the feisty Ruias?

Not at all. We are very comfortable with the decision we took to bid for Essar. We did look at Bhushan Steel as well, including conducting due diligence. Ultimately, we decided to focus on Essar Steel as it is an excellent asset with good location and infrastructure and offered the potential to scale up and grow considerably over the longer term. It was better aligned to our strategic ambitions for the country. Competition is part of any competitive bid situation.

Does Essar provide the last credible chance for ArcelorMittal to enter the Indian steel market in a big way?

India's steel industry is poised to grow exponentially in the coming years. The plan set out by the government is to triple steel production by 2030. So, in such a growth market, I certainly would not describe it as a last chance but it is certainly an important opportunity for us to establish a meaningful presence in India. And our conviction is that ArcelorMittal is the most credible and suitable custodian for this asset.

Essar Steel would benefit from an owner that has the expertise to set the company on a successful track for the future - that means a proper industrial company with a management that knows how to generate value from a steel plant not just for today but for the longer term.

We really believe that together with our partner Nippon Steel, we can bring a lot of value to Essar that is aligned with the government's Make in India policy. We also have an MoU with SAIL to construct an automotive steel plant in India, similar to the successful VAMA joint venture in China and both parties continue to progress on that project.

Is ArcelorMittal agreeable to a fresh round of bid for Essar with new players joining in?

At present , there are only two bids being evaluated: that of ArcelorMittal-Nippon and the Numetal consortium.This is in line with last month's NCLT order asking the resolution professional to present the original offers to the committee of creditors for consideration. A swift resolution for Essar Steel is in the interests of all its stakeholders, including creditors. So, it is important that the original bids are considered on their merits. We believe that our first round offer was strong and compelling.

Creditors have asked for payment of overdue amount for Uttam Galva and KSS Petron, according to the spirit of the order of Ahmedabad NCLT. However, a case has been filed in NCLAT that says ArcelorMittal (AM) won't be eligible despite paying overdue. Will AM wait for clarity from NCLAT before taking a decision on the "goodwill gesture" the company had referred to?

Our fundamental position is that we are eligible and, in reality, were never the promoters of Uttam Galva. We do not believe the intention of Section 29A was to exclude experienced international investors from bidding for Indian assets. So, any discussion about repayment of any dues would need to be considered in this context. We look forward to continuing our dialogue with the committee of creditors and consider any feedback they have on eligibility.

ArcelorMittal had committed to the market to reduce debt to $6 billion. Are you worried that the Essar bid may force the company to defer the target?

We already had visibility of our bid for Essar when we announced the net debt target. So, we are not concerned. Since the financial crisis, it has been a clear priority to deleverage and we have made great strides with this and today have a very strong balance sheet of net debt to EBITDA of only 1.2X. However we want to continue to delever as we want to be in a position where our investment grade rating can be sustained in all market conditions.

We believe that $6 billion is the right level and this is our medium-term target. We have not set a specific time-scale. Essar would be a significant investment but the asset is EBITDA accretive and ultimately we believe represents a good opportunity to create value for the group.

ArcelorMittal has said it wants to expand Essar to 15-20 million tonnes and that includes a primary steel making facility on the east coast of India. Where will that be ?

We see the potential to expand steel making on both the east and west coast and this forms part of our plan that was laid out in the resolution plan. In the first phase, we would be focused on stabilising the asset and maximising production based on the current capacity. Over the longer term, we see the potential to grow the asset to 15-20 million tonnes. India needs to grow its steel making capacity and Essar certainly can be part of this, both at Hazira and Paradip.

This is one of the reasons why we were attracted by the asset.