A logo is seen on the roof of the ArcelorMittal steelworks headquarters in Ostrava, Czech Republic. Photo: Reuters
The Ruias have turned down a proposal by ArcelorMittal to buy out its port and power assets in Hazira in Gujarat, both of which have long-term supply agreements with Essar Steel.
While most of the power generated by Essar Power Hazira is used by Essar Steel, the company can also sell some power to the grid. In the case of the ports company, Essar Hazira Bulk Terminal, while most of the capacity is for use by the steel company, it can offer up to 5 per cent to others. Both these companies
are fully owned subsidiaries of Essar Power and Essar Ports respectively. A top source close to the Essar group who was involved in the discussions said: “ArcelorMittal approached Essar for discussions on buying the two assets. However, they have been told that the Ruias are not interested as they are pursuing a case against ArcelorMittal in the bankruptcy courts under IBC (Insolvency and Bankruptcy Board of India). ”
Elaborating on Essar Steel’s power purchase agreement with Essar Power Hazira as well as its agreement with the ports company, the source said, “These are long-term agreements for 25 years and are detailed in the resolution plan for Essar Steel, which has agreed on their continuance. Only two to three years of the agreement have been completed, and most of the capacity is for captive consumption of Essar Steel.”
The Ruias are locked in a bitter battle with the Mittals and are contesting their offer to buy Essar Steel in the bankruptcy and other courts. Their stance is that their (Ruias’) offer of Rs 54,389 crore is much better than their rival ArcelorMittal’s offer of Rs 42,000 crore. However, the latter currently seems to have an upper hand in the battle. A spokesperson for the Essar group declined to comment on the issue. A spokesperson of ArcelorMittal too refused to weigh in, but gave out a statement saying: “ArcelorMittal, Nippon Steel and Sumitomo Metal are visiting these facilities in light of the planned acquisition of ESIL to understand the supply arrangements for raw material and power for the steel plants.”
Private equity funds who were initially looking at making a bid for Essar Steel with strategic investors pointed out that the Ruias have ring-fenced Essar Steel by controlling the ports and the captive power plant through the separate companies.
“For a new buyer this is a complex situation even though there are long term deals in place. You will be dependent on erstwhile promoters of the steel firm with whom you have competed for key requirements like power and ports, without which the plant cannot run or run economically. It’s not a comfortable situation,” said a source at a leading global PE fund which had looked into the asset on sale.
On the other hand, there are those who pointed out that if the Ruias do not retain control of Essar Steel, the group would be majorly dependent on whoever are the new owners of Essar Steel.