AM/NS India eyes $250-300 mn gain from purchase of Essar group infra assets

The port and power assets are primarily captive to AM/NS' Hazira steel plant in Gujarat, will expand firm's footprint and operating efficiencies

ArcelorMittal Nippon Steel India (AM/NS India) is expecting a gain of $250-300 million per annum from the synergies arising out of the proposed acquisition of infrastructure assets from the Essar group.

On August 26, AM/NS India and the Essar group announced a definitive agreement for acquisition of port and power assets by the joint venture of global steelmakers for a net value of about $2.4 billion.

The assets are primarily captive to AM/NS’ Hazira steel plant operations in Gujarat and the gains will be significant once the transaction is closed.

AM/NS India’s deputy chief financial officer, Amit Harlalka, said that a gain of anything between $250-300 million was expected on the current level of steel capacity, which is nine million tonnes per annum (MTPA).

“The strategic infrastructure assets that we decided to acquire will expand our footprint and operating efficiencies, and enable real security across our logistics and energy supply chain with immediate and long-term synergies, such as supply chain optimization and significant logistics cost savings,” Harlalka said.

Elaborating, Harlalka said operating synergies will be realised through reduced demurrage, lighterage, and wait times at all inbound and outbound port locations.

“Through these acquisitions, AM/NS India will also be able to create economies of scale by increasing the draft of the channel throughout the terminals as the Hazira facility expands to generate steel production capacity of 15 MTPA by 2026,” he said.

“As we grow, these synergies will only strengthen our competitive advantage,” Harlalka added.

Since the acquisition of Essar Steel jointly by ArcelorMittal and Nippon Steel in December 2019 under the insolvency law, the endeavour has been to make AM/NS India self-reliant.

That meant acquiring critical infrastructure like captive power plants and slurry pipelines. The latest piece in that strategy is the proposed acquisition of captive port and energy assets, which according to a recent investor and analyst presentation, was expected to be closed in 2022.

Though allied to AM/NS India’s steel facilities, the critical infrastructure assets were not part of the insolvency resolution process for Essar Steel.

The port assets being acquired include: a 25 MTPA captive jetty at bulk port terminal at Hazira; a 16MTPA deep draft terminal at Visakhapatnam, Andhra Pradesh and 12 MTPA deep-water jetty at Paradip, Odisha.

The transaction also includes a 270 MW multi-fuel power plant at Hazira and a 515 MW gas-based power plant, with allied land earmarked for Hazira expansion. And a 100 km Gandhar - Hazira transmission line connected the steelmaking complex with the central electricity grid.

AM/NS India’s growth plans in the offing make ownership of the assets important.

The joint venture of the world’s leading steelmakers recently received an environmental clearance for Hazira plant expansion to 15 MTPA. The total capex for the project is pegged at $5.1 billion.

There is scope for further expansion to 20 MTPA at Hazira, which would be less capital intensive than the first phase expansion, the presentation mentioned.