ArcelorMittal, Numetal boost credentials for Essar Steel bidding

Ahead of a meeting between the resolution professional (RP) and lenders, the two bidders for Essar Steel — ArcelorMittal and Numetal — are working on strengthening their credentials to shore up their count for the qualitative part of the bid,  important if they qualify.

From ArcelorMittal, the most important development was an agreement with Nippon Steel & Sumitomo Metal (NSSMC) regarding joint acquisition of Essar Steel. Though NSSMC will proceed to form the joint venture only if ArcelorMittal’s resolution plan is selected by the National Company Law Tribunal (NCLT), it's sending a message that two metal giants are coming together to acquire Essar. 

ArcelorMittal is the world's largest steel company and Nippon is the fourth.  The agreement also gives Arcelor, majority partner in the venture, a chance to showcase the turnaround of AM/NS Calvert, acquired in partnership with NSSMC in 2014. In two years, the capacity utilisation rates there have improved by about 20 per cent, shipments to the automotive sector more than doubled between 2015 and 2017, and productivity at the hot strip mill has increased by over a million tonnes since the acquisition.

Industry sources said spurning ArcelorMittal's bid would now mean turning down two giants.

A meeting between the Essar Steel RP and lenders could be held on Monday. Eligibility of ArcelorMittal and Numetal bids are likely to be discussed. The bids came on February 12 and were sent to a firm, Cyril Amarchand Mangaldas, for advice.

ArcelorMittal India Pvt Ltd (AMIPL) has also been assigned a long-term issuer rating of AA by rating agency ICRA. This will help shore up the company's count on the qualitative front. The bid for Essar Steel was formally submitted by AMIPL.

ICRA has also rated the ultimate holding company, ArcelorMittal SA, AA positive. It was uploaded on the ICRA website on February 13 and might have been submitted with the Essar bid.

The the qualitative part of the bid has 30 per cent weight. According to the evaluation criteria for the Reserve Bank of India’s first list of 12 major non-performing assets, Essar Steel being one, 70 per cent weight is attached to the quantitative part.

An RP said the qualitative part was significant, as a resolution would not only mean cash upfront. On each of the categories in the quantitative part, there was a cap. In the qualitative part, previous record, turnaround experience and dealings with stakeholders, all figure.

However, ArcelorMittal is not the only bidder to showcase its strengths. Last week, Numetal partner Tyazpromexport (TPE) said it would ensure a quick turnaround of Essar. TPE has assisted in the construction, modernisation, upgrade and operation of around 100 industrial enterprises, including integrated steel plants in Bokaro, Bhilai, Durgapur and Visakhapatnam.

Sources close to Numetal said its main shareholders, VTB Capital and TPE, had over 60 years of experience in the industry, including in stressed asset situations. VTB Bank, 60 per cent owned by Russian government, has been part of almost all the Russian steel mills through boom and bust, they said. VTB Bank has a balance sheet size of over $400 billion, with about $215 billion of assets under management. These are believed to figure in Numetal’s qualitative part of the bid.

The marking would be by the lenders. “Ultimately the committee of creditors would decide which investor would take charge,” the RP said. In this case, however, it might also be the courts.