ArcelorMittal- Nippon Steel in talks to buy 500 Mw Bhander power unit

AM/NS India — a joint venture (JV) between ArcelorMittal and Nippon Steel that has acquired Essar Steel — is in advanced stage of discussions with Edelweiss ARC to buy Bhander power plant.


Bhander Power, a 500 megawatts (Mw) natural gas-based plant located in Hazira, Gujarat, is captive to Essar steel plant, and was till recently owned by the Ruias, promoters of the Essar group.


The power plant is being sold by Edelweiss under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act.


“It (Bhander power plant) is a good asset. We hope to close it soon,” said people close to Edelweiss. They, however, said the deal was yet to be finalised.


AM/NS India declined to comment.


An Essar official said: “We confirm having sold this plant to Edelweiss for a sum of Rs 475 crore. Lenders will recover their full loan value.”


Essar’s move is part of an ongoing effort to bring down the leverage across the group. “We have already reduced debt by over Rs 1.4 trillion in the last two years, which is the largest by any Indian corporate,” the official said.


“The balance residual group-wide debt is primarily concentrated in the power portfolio that we are now addressing by significantly reducing it. Sale of Bhander Power to Edelweiss is a step in that direction,” the official added. The Essar group is aiming to reduce debt in the power portfolio by over 60 per cent or Rs 12,000 crore.


In December, Essar Steel was acquired by ArcelorMittal and Nippon Steel jointly under the insolvency law in a Rs 42,000-crore deal. Essar Steel's assets, however, did not include certain assets ancillary to the steel plant, such as a slurry pipeline, power plants and port facilities.


The acquisition of Bhander power plant is part of AM/NS India’s move to secure captive resources and expand margins. The gas-based power plant is one of the captive power sources for the steel plant.


Aditya Mittal, president and group chief financial officer of ArcelorMittal, had said in an earnings call recently, that Essar Steel’s balance sheet has some cash because of the equity injection made, and small acquisitions like the slurry pipeline or power plants would keep it in a net cash position. ArcelorMittal has made an equity contribution of $1.6 billion for the acquisition of Essar Steel.


AM/NS India is 60 per cent held by ArcelorMittal and 40 per cent by Nippon Steel. The cash injection in the JV is in the same pattern as the holding of the two companies. It appears that AM/NS India is stepping up efforts in securing the captive units for the steel plant. The idea is to make the 9.6 million tonne plant self-sufficient, said people close to the matter.


In December, after the Supreme Court paved the way for the completion of the Essar Steel’s acquisition, Odisha Slurry Pipeline Infrastructure’s committee of creditors (CoC) selected ArcelorMittal’s Rs 2,300 crore upfront payment offer. However, the resolution plan has been challenged in the National Company Law Tribunal, and hearing in the matter is on.


The 253-kilometre slurry pipeline is yet another important ancillary unit for AM/NS India. The pipeline connects the iron ore beneficiation plant in Dabuna with the 12-million-tonne pellet plant in Paradip, Odisha. The pellets, a raw material feed for the steel plant, are shipped to Hazira in Gujarat.


The plan for AM/NS India is to reinvest cash to finance turnaround and growth plans. In its result presentation, ArcelorMittal said, according to January 2020 annualised estimates, production of AM/NS India was running at 7.4 million tones; its earnings before interest, tax, depreciation and amortisation, or Ebitda, was at $0.6 billion run rate; and it was cash flow positive.

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