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Davos 2019: Don't think Essar is trying to act in the best interest of creditors, says ArcelorMittal
January 24, 2019

Davos 2019: Don't think Essar is trying to act in the best interest of creditors, says ArcelorMittal

Considered the brain behind the merger of Mittal Steel and Arcelor in 2006, Aditya Mittal, president and chief financial officer of ArcelorMittal, joined the family business in 1997. Son of steel tycoon Lakshmi N Mittal, he was born in India and grown up in Indonesia. He joined his father’s company after graduating from Wharton magna cum laude. Mittal is a board member of the Wharton School and also serves on the board of Iconiq. He is also a significant supporter of the Great Ormond Street Hospital in London, UK and works closely with UNICEF, focusing on children’s healthcare in India. Mittal believes that Ruia family is not trying to act in the best interest of creditors in the Essar Steel case. "All promoters have the right to buy back their companies by paying back, but not 540 days later," he tells CNBC-TV18.

Edited Excerpts:

Q: As I said, you are not a stranger to bitter battles, we have seen one playout a little more than decade ago for Arcelor it took five and half months to wrap that up. What is your own sense of how things are panning out? Do you think that the IBC process is being frustrated by some individuals?

A: Our focus is value maximisation through a rule based process I think that is what we follow.
The process of Essar Steel has taken a bit longer than we all anticipated. The IBC suggests 270 days for the whole process to be wrapped up, it has been about 540 days.

But I think we are coming to a good conclusion. There was a judgement this morning as well at the Appellate Court requesting Ahmedabad court to hurry up, by January 31st,so that is not too long, that is not too far away.

Q: Do you think that this NCLT and NCLAT is the first instalment, real battle is going to playout in the Supreme Court, are you prepared for that?

A: We went to Supreme Court back in September, the Supreme Court passed a judgement and we complied with the judgment and as result the committee of creditors (CoC) took a decision and the process has moved on. I think the Supreme Court heard the case, they went through it in a lot of details, and the Supreme Court is very aware what this process is about. So, going back to Supreme Court I think the judgement will be repeated, so for us it is not a matter of concern.

Q: Let me ask you about whether you were surprised about State Bank of India's decision to put that Rs 15,500 crore of the Essar Steel exposure on the block, of course the deadline for that has now been extended. How do you see that playing out and what the implications could be on the IBC process?

A: That is another demonstration why the process needs to come to a logical conclusion and a speedy conclusion.
The state banks are losing Rs 17 crore a day that is a lot of money and that is a lot of money for India. They can utilise those funds, redeploy it to enhance liquidity in the country, redeploy it to give loans and boost growth.

Yet instead because of all of these actions and delay tactics they are requesting bids at an 18 percent discount to our offer. 18 percent discount that is a lot of money that has been put on the table and that is why it is very important that the court processes and the rule based IBC is implemented because otherwise in the big picture the country is losing lot of value.

Q: You talked about value maximisation and I go back to the statement that came in from Essar Steel saying that their offer is in line with the objective of the IBC to enhance value maximisation not just for lenders but also for operational creditors and their offer is better than the resolution plan that was cleared Rs 12,000 crore better, how do you respond to that?

A: That is very interesting because when you read the media reports the first offer that they made was Rs 20,000 crore.

Q: Now in excess of Rs 54,000 crore?

A: But if you go back to day one it was Rs 20,000 crore.

Q: I am talking about the revised offer?

A: So let us talk about the revised offer. You have to follow rule based process and that is what my answer was going to be because if you do not follow rule based process companies like us and others will not participate if there is a promoter bidding for a company. Then what you would have seen is that Essar Steel would have been sold to Numetal/ Ruia's for Rs 20,000 crore that would have been a massive loss. Then future bad loans, future companies which are not able to service the debt, the promoters would come back and buy it back at a discount because the Essar Steel would demonstrate that you don't have to follow the rules. So it is not just about our case.

Q: So you believe that this is a subversion of the IBC?

A: Yes, absolutely because the IBC process is very clear, the court was very clear, there were chances to submit bids, I mean we all know this is not a process which started yesterday, it is almost two years and so now suddenly CoC has decided they have chosen the winning bid to come in at the last moment, I don't even think the bid is financed, there is no guarantees, there is no penalties because in the IBC process you provide guarantees, if you forfeit your bid all of those things are there. So it is unfortunate development and clearly the courts will take the right decision. I have lot of faith in the rule based economy as India and that should be logical conclusion.

Q: That is the point of view of Essar, but that point of view has also been bolstered by somebody like Sajjan Jindal also perhaps an interested party in some senses or at least was in the previous avatar of the bid with Numetal? What you make of Sajjan Jindal saying that look the Essar family should get the right to go through with this if they can finance it?

A: All promoters have the right to buy back their companies by paying back, but not 540 days later. They should first of all not allow the company to go under - that is the first requirement and if the company has gone under, try and find a solution as soon as you can.
To first submit a bid of Rs 20,000 and then mess around with the process I don't think is the promoter trying to act in the best interest of creditors.

Q: Is there a possibility at all and we saw this playout as far as Arcelor is concerned that there was a last minute sweetening of the offer, is that a possibility that you would consider given the fact that Essar continues to bring up the fact that there is Rs 12,000 crore difference between what they are offering and your offer?

A: I think we have gone through 540 days, I think what the banks are really focused on is coming to the right conclusion.

Q: Is this even a possibility - a revised offer on your part?

A: There is no need. CoC has taken a decision, we are in the courts to approve the resolution plan, so at this point in time I think our bid if you just look at the scoring when the bids were opened it was far in excess of anything on the table. Today the banks are willing to sell at a discount to our bid. So, the discussion is not about the bid, the discussion is really about the process, making sure that the employees of Essar Steel have a clear future, making sure that we can make the investments, improve the business, grow the business and bring in our capabilities to India.

Q: Your plans for India rest on what finally happens as far as Essar Steel is concerned. But that has also put a spanner in the works for your other plans, for instance the agreement with SAIL. If the process were not to go through as per your expectations, what happens to ArcelorMittal's plans for India?

A: SAIL is not linked to Essar Steel.

Q: I am talking about your plans for India outside of Essar Steel if this were not to go through?

A: That is not a possibility as far as I am concerned.

Q: You are not even willing to look at that possibility?

I believe that India is a rule based economy and this is why the country will continue to develop and progress.

If you look at the rules, rules are very simple, the IBC process is designed to maximise value within the rules of the process and that's what we have followed.

Q: On that SAIL agreement is the definitive agreement anywhere close to being inked?

A: The whole team and all of us have been very focused on Essar Steel. So, we need to arrive at the end conclusion of that process and then we are going to turn our energies to SAIL.

Q: You keep stressing on the fact that instead of 180 days it has already been 540 days, we should hear from the NCLT by January 31 and the NCLAT perhaps sometime in February, what is time line that you are now working with and again the possibility of going back to Supreme Court is a valid one?

A: The timeline that everyone is working towards is to complete it in this Indian fiscal year, which is end of March.

Q: If it does go through and it goes through in your favour which you absolutely believe it will and you feel certain that it will, what next then as far as Essar Steel is concerned and your plans for the company?

A: First of all at ArcelorMittal we pride in terms of our safety culture, safety performance.
Even though we are about 6 percent of the global steel production and according to World Steel Association (WSA), two thirds of the world's safest sites are ArecelorMittal facilities.

So, clearly we want to bring safety practices, Essar already does a great job but I think we can bring some capability there. We also want to have a positive impact on the environment, we think we have very strong environmental practises and we can implement that. The third area that we want to focus on is some of the capex has not been spent over time because of all the financial difficulties, so we want to accelerate and spend that capex and make sure Hzira achieves its design capacity. Hazira is an 8.5 million tonne facility today and it is not shipping that amount of steel. So, that is the first order of business - safety, health, environment, completing the capex and making sure Hazira achieves design capacity.

The next order of business is looking at growth. We believe we have expansion possibilities at Hazira. We can take Hazira to up to 12.5 million tonnes, so that is very exciting, how to plan that growth. We also have to examine changes in its technology because Hazira has been very gas dependent and which has been one of its weaknesses and we want to bring in blast furnace technology and coke making capability so that its gas dependence reduces and that will improve its cost performance. So, in the future it should not enter into compressed margins when the steel industry goes down because gas prices are not linked to the steel business.

Then we would also look at East Coast assets. The eastern coast assets if you look at Paradip, it has good potential. We could examine setting up a greenfield facility in Paradip. So, for us the acquisition of Essar is very exciting. It is a great steel asset. You have to give credit to the Ruia's and their family for building such a facility. It is a coastal site, it is a large scale site. It has two sites on the east coast which are also coastal to pellet plants, to pipelines, to pelletizers, 8.5 million tonne design capacity, so lot of credit for building something like that in the Indian context. Clearly there is an opportunity to take it forward and that is what we are interested in.

Q: You talked about the plans that you have for Essar Steel as and when this transaction is concluded in your favour, what kind of investments are you talking about traditionally?

A: We have not publically disclosed the level of investments.

Q: Give me some sense?

A: It is at least a few billion dollars of investment both in terms of catch up capex as well as fixing the gas issues and achieving design capability at Hazira and taking it beyond that.

Q: If this were to get done by the first half of this year, how soon will you be able to sort of takeover and get things going as and when the deal is done?

A: Normally it is very fast. We have all the approvals, we have competition approvals, we have the facilities, we have the money. I saw that when Tata got the approval from the courts on Bhushan Steel, they closed it within 3 days. So, I think the whole thing will be very fast. We also have Indian competition approval and so I expect it to be closed within days of the court finally approving our resolution plan. We have our team ready, it is a joint venture with Nippon Steel. Nippon Steel is another great steel company, largest in Japan, it is among the largest steel companies in the world and together we can bring and enhance all the strategic plans is poke about. We can bring value added technology to the country, we can bring automotive products and solutions for the growing automotive industry, we can provide further solutions in terms of the construction segment and we should not lose focus that we can also provide capability on how to have a minimised carbon footprint as that becomes a bigger and bigger issue as climate change is upon us now.

Q: Has there been any conversation with the Ruia's over the last 540 days on this matter at all?

A: India is a very small country at the end of the day. We are always talking, I know the family very well. As I said, it is very impressive what they have built. I think now there is a chance for someone else to come in and take it to the next level.

Q: If things were not to go your way would it be the end of the story and end of the road as far as your plans for India are concerned?

A: It will never be the end.

Q: Greenfield assets you have been trying for very long?

A: From our perspective we have followed the rules, the country will flourish and develop if the rules are followed, that is how you take a developing country into developed country.
If you cannot have a rule based economy, it is very hard for investors both within the country and outside the country to invest.
So, I don't think there is any reason to speculate on what happens if we don't succeed, there is no plan B, we are going to succeed.