The Indian steel market, despite its recent sluggishness, is among the fastest growing in the world. India, which overtook Japan last year as the world's second largest steel producer, now produces 106 million tonnes of steel, second only to China's 928 million tonnes.
LN Mittal can now afford a smile. It's been more than a decade since the billionaire businessman's first tryst with the Indian steel industry. And now, after jumping through multiple regulatory hoops, Mittal— through his firm ArcelorMittal— is close to owning a steel unit in the country of his birth.
On November 15, the Supreme Court cleared the decks for Mittal, handing banks the power to decide on how the proceeds from ArcelorMittal's bid — Rs 42,000 crore — will be distributed among several creditors.
“We are very pleased with the judgment that our resolution plan has been approved. We look forward to the closing of the acquisition soon,” ArcelorMittal said in a statement.
While announcing third quarter results earlier this month, the company had indicated that it may complete the Essar Steel acquisition in the fourth quarter. ArcelorMittal follows a January-December calendar.
A presence in India will help Mittal, who in 1976, had left the country to set up a plant in Indonesia. The Indian steel market, despite its recent sluggishness, is among the fastest growing in the world. India, which overtook Japan last year as the world's second largest steel producer, now produces 106 million tonnes of steel, second only to China's 928 million tonnes.
But setting up a new plant in India is complicated and time-consuming. Mittal, who now lives in London, was forced to abandon plans to set up a mega steel plant in Odisha.
In Essar Steel, which has installed capacity to produce 10 million tonnes of steel a year, Mittal gets a facility that is modern, close to the sea and with easy access to raw materials.
There are challenges too. For instance, a considerable part of Essar Steel's capacity needs gas, which is scarce. And Mittal also needs access to power plants and ports — at present controlled by the Ruia family — in the facility's vicinity. There is also a slurry pipeline that is mired in litigation.
But these challenges will not deter Mittal, who over the last four decades, fought many a battle to build a steel empire that towers over the rest of the industry.
The global headache
Mittal will have little time to savour his success in India, which has come after a fierce bidding war with rivals followed by another long drawn battle in the courts.
The global slump in the steel sector has some analysts wondering if the multi-billion dollar acquisition could well turn out to be a winner's curse for his firm like it had for Tata Steel in 2007 when it acquired Corus. As this Moneycontrol story had earlier outlined, the final price for Essar Steel could be well over the bid of Rs 42,000 crore, and may even cross Rs 60,000 crore.
The hefty bill comes at a time when ArcelorMittal is grappling with weak demand in Europe and has already cut production at several of its units. The weakness is showing in the company's financial performance as well.
Between April to September of this year, Arcelor has reported a net loss of close to $1 billion.
The company has been idling its blast furnaces across operations, and was forced to shut a plant in South Africa. It also backed out of a deal to acquire Italy's largest steel producer.
The situation is not any rosier in India, where steelmakers have been saddled with high inventories resulting from weak demand and soft prices because of the economic slowdown. Tata Steel and JSW Steel escaped reporting losses in the second quarter, but only because of tax write-backs.
The current environment is a far cry from the time when ArcelorMittal joined the race for Essar Steel in late 2017. Then, the steel industry globally was enjoying robust margins, backed by stable demand.
But for someone who has seen many a steel cycle in his entrepreneurial journey, Mittal knows that a beachhead in India — despite the short-term challenges — will eventually pay off as economic activity picks up again.LIVE NOW... Video series on How to Double Your Monthly Income... where Rahul Shah, Ex-Swiss Investment Banker and one of India's leading experts on wealth building, reveals his secret strategies for the first time ever. Register here to watch it for FREE.