Last hurdle removed for $6bn takeover of Essar Steel

ArcelorMittal India Private Limited’s (AMIPL) resolution plan for Essar Steel India Limited (ESIL) has been unconditionally approved by the Indian Supreme Court. After completion, ArcelorMittal will jointly own and operate ESIL in partnership with Nippon Steel Corporation (Nippon Steel), Japan’s largest steel producer and the third largest steel producer in the world, in-line with the joint venture formation agreement signed by the two companies.

India's Supreme Court (SC) has removed the last hurdle for ArcelorMittal’s $6bn takeover of debt-ridden company Essar Steel, upholding key provisions of the three-year-old bankruptcy code in a critical test of the country’s new debt resolution process. In its highly-anticipated ruling, the court upheld the bankruptcy code provision for financial creditors’ claims to have priority over unsecured, operational creditors a principle common in western countries.

The ruling on Friday clears the way for the deal’s completion, giving Lakshmi Mittal, ArcelorMittal’s India-born chairman and chief executive, a long-sought foothold in a large economy where demand for industrial metal is projected to boom. 

India’s bankruptcy law adopts the common western practice giving top priority to the claims of banks and other secured creditors, who sit together in a creditors’ committee to decide how monies recovered should be distributed.  But the NCLT judge, who had little expertise in bankruptcy or commercial law, ordered that all of a troubled company’s creditors not just its bankers be treated equally, infuriating both banks and foreign distressed debt funds that had already bought up much of Essar’s debt.

The Essar Group, a business empire built by brothers Shashi and Ravi Ruia, was one of 12 huge debt defaulters that India’s central bank had ordered to be put into bankruptcy proceedings back in 2017. 

Banks had moved the Supreme Court (SC) earlier this year after the judgment by court to put the claims of operational creditors on par with those of its lenders.

Last year, Essar’s heavily-indebted steel arm, whose assets include the prized Hazira steel facility, one of the world’s largest steel plants, was auctioned to ArcelorMittal, which was eager to establish a presence in India and  had struggled to set up its own Greenfield projects.

The acquisition will mark the entry of the world's largest steel company into India, which has emerged as the second biggest steel market in the world. Following its acquisition, ArcelorMittal will be the fourth largest steel producer in the country which has set its target of achieving 300 million tonnes in production. ArcelorMittal, headed by Lakshmi Niwas Mittal, said that he is very pleased with the judgement and will close the acquisition soon.

But ArcelorMittal's acquisition of Essar Steel is a great risk for domestic steel producers, because the global giant already gets a ready asset being one of the largest and fastest growing markets for steel in the world.