20 February 2019: Essar Group has discussed the sale of its captive port and power plant in Hazira, Gujarat, for Rs 8,500-10,000 crore with ArcelorMittal, multiple people aware of the discussions said.
In a sign that the London-based steelmaker has gained an upper hand in the race to buy out Essar Steel, a team led by the group’s director strategy and M&A, Vikash Saraf, visited London to negotiate with chairman Lakshmi Mittal and son Aditya for the sale. According to officials present, they were also joined by Prashant Ruia via video conferencing from Mumbai, although this could not be independently verified.
These two assets are not part of the Essar Steel resolution plan but are essential for the 10 mtpa plant in terms of raw materials and power supply. Both are located in the same coastal complex.
A team from ArcelorMittal is in Hazira this week for a visit at the port and plant site. “AM and Nippon Steel & Sumitomo Metal are visiting these facilities in light of the planned acquisition of ESIL to understand the supply arrangements for raw materials and power for the steel mill,” an Arcelor-Mittal spokesperson said in response to ET’s queries.
Essar officials, however, say they will continue to contest the Mittals in the bankruptcy courts since they believe their Rs 54,389-crore proposal for withdrawal of Essar Steel from IBC process is better.
“This proposal offers creditors of Essar Steel 100% recovery of all their dues and is Rs 12,000 crore more than the recovery from the ArcelorMittal resolution plan of Rs 42,000 crore. With full payment of dues of all creditors, there is no need for Essar Steel to remain in the IBC process,” an Essar Steel spokesperson told ET. “We believe that our settlement proposal offers the best possible outcome to all the stakeholders of Essar Steel, and also meets the ultimate objective of the IBC, which is to maximise the recovery to all creditors.”
Sources close to Essar Group claim that ArcelorMittal is indeed interested in the captive assets and are on a diligence tour at the steel complex on Tuesday but for a “routine exercise and for now, the Ruias are shooting to win”.
The talks, however, have gathered momentum after last-ditch attempts by the Ruias to salvage their flagship operations by creating an alliance to counter the ArcelorMittal bid floundered, say people in the know.
Following detailed discussions in London in December, it was proposed that Sajjan Jindal-led JSW, Anil Agarwal’s Vedanta and Russian bank VTB would form a consortium and back Essar. As per those preliminary discussions, JSW was to take charge of the core steel making operations and get into an offtake agreement with Vedanta for supply of gas to fire its DRI units.
Vedanta was to also supply iron ore. VTB and Essar was to take control of the pellet making and beneficiation facilities in Odisha. Essar Group sources added that a tentative 40:30:30 equity arrangement was also conceived. The plans were eventually dropped.
A Vedanta spokesperson said, “The company categorically confirms that it is not in the process of submitting any revised bid for Essar Steel and as a policy we do not comment on market speculations.” VTB did not respond to ET’s questionnaire and JSW could not be reached for comments.
The Hazira port and power plant are absolutely crucial to run the steel unit smoothly but they are housed in separate standalone companies.
Essar Steel Hazira is the country’s largest single-location flat steel plant. The complex also houses a 30 mtpa, all-weather, deep draft, dry bulk port and a 515 mw natural gas-operated power plant. Built at a total cost of more than Rs30,000 crore, Essar Steel Hazira has a steelmaking capacity of 10 mtpa.
Currently the terminal is operating 4 berths with a total quay length of 1,150 metres with operational draft of 14 metres. The port has a take-or-pay contract with Essar Steel.
In 2017, Essar Bulk Terminal Ltd (EBTL), the operator of the Hazira port terminal facility, had signed an agreement with Gujarat Maritime Board (GMB) for expanding its captive jetty by 1,100 metres.
The expanded berthing facility was scheduled to be ready by end-FY18, to enhance the current capacity by 20 mtpa. This was done not only to help cater to the enhanced cargo requirements of Essar Steel, its anchor customer, but also give a boost to the company’s third-party cargo business, said a company release.
During the bidding process last year, some suitors of Essar Steel had approached Adani Hazira Port – located approximately 6 km from the Essar Steel plant on the western side of the Hazira peninsula – for an informal commitment for using their port infrastructure to bring in key raw materials like iron ore and LNG as a contingency plan.
Essar’s steel plant needs 800-900 mw. Currently, Mahan power plant in Madhya Pradesh, a unit of Essar Power, supplies 300 mw. Another 300 mw is generated and supplied by the captive unit in Hazira while the group buys 200 mw from the open market.
Due to the reliance on Mahan, ArcelorMittal has bid for the Mahan unit as well. The steel major has made an offer of Rs4,800 crore for the 1,200 mw Mahan project, said Power Finance Corporation (PFC) on Monday. Government-owned PFC is one of the lenders to the project. This is part of PFC’s portfolio of stressed assets and it is seeking a one-time settlement for the same.
The Arcelor offer, it said, is higher than Essar Power’s settlement offer of Rs 3,500 crore. ArcelorMittal had also bid for Essar Projects, the EPC division of the diversified group, at a 93% discount.