Tough challenge for ArcelorMittal to complete Essar Steel buy

New Delhi, Sept. Sep 6 (IANS) After braving tough legal challenges to emerge as the successful resolution applicant for Essar Steel, the worlds largest steel maker ArcelorMittal might now face a tough challenge to go ahead with the buyout of a fully integrated steel facility in India amidst falling steel power and bleak outlook for the sector.

Industry sources in the know of the developments said that the Luxembourg-based company is constantly reviewing its India plans and is also under pressure from its investors, some of whom have questioned buying a steel plant at a premium at this juncture when the market prospects has painted a darker future for the sector.

ArcelorMittal however, did not respond to a query sent by IANS on the developments. Messages and phone calls made to the spokesperson did not elicit any response.

The company in a statement to investors though had said it expects to close the Essar Steel acquisition in the December quarter.

ArcelorMittal has emerged as the successful resolution applicant for Essar Steel and its bid of Rs 42,000 crore has been approved by the committee of creditors (CoC). But the resolution process is yet to reach finality with the matter now in Supreme Court.

The Supreme Court had on July 22 put on hold the sale of Essar Steel India Ltd to ArcelorMittal after lenders to the bankrupt Indian steel maker challenged an appeals court ruling that said operational creditors have to be treated on a par with financial creditors. Subsequently, submissions have also been made by operational creditors who have challenged the validity of the recent amendments to the IBC.

For ArcelorMIttal, the India jinx seems to be at work again preventing the company from having an integrated steel operations of its own. Steel sector experts say that not only domestic steel prices and demand are falling, the global steel demand is also expected to remain subdued with the ongoing trade war between the US and China. This could put the sluggish steel cycle longer making survival of companies difficult.

In India, the benchmark hot rolled coilsteel prices has already dipped below the Rs 40,000 a tonne mark for first time in the last two years due to weak demand. Globally, steel prices have fallen almost 20 per cent to about $ 500 a tonne from over $600 a tonne when ArcelorMittal first placed its bid for Essar Steel in early 2018.

India Ratings and Research (Ind-Ra) has also revised down its outlook on the Indian steel sector from 'stable' to 'stable-to-negative' for the remainder of FY20 owing to sluggish steel demand growth expectations. A Moody's Steel Asia Outlook has said that India's steel demand will slow to mid-single digit growth due to weak auto and manufacturing demand.

"The signs for the steel market is negative. Though governments stimulus and infrastructure investment would sustain demand and arrest price fall, global economic environment does not portent good for the sector," said a steel sector expert.

For ArcelorMittal, the rs 42,000 crore bid for Essar Steel is not the only cost to takeover the operations of the company. It has to spend another Rs 2,500 crore for the slurry pipeline in Odisha and will need to invest up to Rs 15,000 crore more for reducing dependence on gas usage in iron making.

Moreover, ArcelorMittal has already paid Rs 7,500 crore to clear the dues of Uttam Galva Steels and KSS Petron to make itself eligible for the bidding process.

Investors have begun to question large investments as the company itself is facing tight financial situation. ArcelorMittal reported an operating loss of $0.2 billion and net loss of $0.4 billion in the June quarter.

EBITDA of $1.6 billion in the quarter was down 43 per cent reflecting a negative price-cost effect. Gross debt of the company was at $13.8 billion in June quarter, compared to $13.4 billion in the March quarter.