Even as banks seek suitors for Essar Steel, which has been referred to the bankruptcy court, brothers Shashi and Ravi Ruia could well find inspiration from similar circumstances almost 20 years ago. Then too, they were facing the ignominy of a possible loss of their steel business.
In 1999, Essar Steel had earned the dubious distinction of being the first Indian company to have defaulted on its floating rate notes worth $250 million. The crisis deepened as steel prices, bogged down by the Asian Financial Crisis, dived to unsustainable levels.
As imports increased, demand for domestic steel also plunged. By 2002, the company had debts of nearly Rs 3,000 crore, and was forced to go into a corporate debt restructuring (CDR) package approved by its creditor banks. The group’s reputation had taken a hit, though Prashant Ruia, Shashi’s son, would call it a smear campaign. The company’s only comfort was that its peers like Jindal Steel and Ispat Industries were also forced to restructure their debts.
Though the company came out of the CDR in 2006, a little more than a decade later it finds itself in trouble again. And the Ruias, who faced severe backlash from investors for delisting the company in 2007, would be experiencing a sense of a déjà vu. Essar Steel’s overseas acquisitions, including that of Canada’s Algoma Steel for $1.8 billion in 2007, had ended in misadventure. Within a decade, both Algoma and Minnesota Steel - the US-based company was also acquired in 2007 - had filed for bankruptcy.