Japanese steel major JFE is taking the lead role in the consortium comprising JSW Steel and Bain-Piramal to make an aggressive bid for Bhushan Steel next week.
The change in the consortium structure was necessitated after cash-rich ArcelorMittal and Vedanta decided to jump into the fray. Bain-Piramal is a fund seeking distressed assets and is jointly promoted by Bain Capital Credit and Piramal Enterprises.
Bhushan Steel was taken to the National Corporate Law Tribunal (NCLT) after it failed to repay banks Rs 570.00 billion, the largest non-performing asset in Indian banking.
For JFE-JSW Steel, the acquisition of Bhushan Steel is important because the duo has no presence in eastern India. “JSW Steel is leaving no stone unturned to bag Bhushan Steel as it is the most prized asset among the RBI’s dirty dozen,” said a JSW Steel executive. The Reserve Bank of India had referred 12 of the largest corporate bank loan defaulters for insolvency proceedings.
“JSW Steel has no presence in East India and Bhushan Steel can be its entry point in this market,” the executive said. JSW Steel has already won the race to bag Monnet Ispat, another steel maker facing insolvency proceedings, and lenders are set to accept its offer, according to a banking source.
Bhushan Steel, with a capacity of 5 million tonnes per annum, has also attracted the attention of Vedanta, which produces iron ore in Karnataka and Goa. Vedanta made the highest bid of Rs 45.00 billion for Electrosteel Steels and is awaiting banks’ response to its offer against a liquidation value of Rs 29.00 billion.
For the Anil Agarwal-owned Vedanta, the steel industry is uncharted territory where returns on investments are lower than the company’s core business of oil and mineral exploration. “That Vedanta offered a big premium for Electrosteel shows it is serious about getting into steel production,” a banker said.
For ArcelorMittal, the acquisition of Bhushan Steel will mean an entry into India, which it has failed to accomplish despite signing agreements with several state governments.
“Of Bhushan Steel’s total capacity, almost 1.5 million tonnes are idling due to lack of coal.
But this problem can be resolved with a new investor coming in and company paying its suppliers,” said a bidder.
Tata Steel, which is planning to raise funds via a rights issue, is also likely to bid but as the company has a presence in nearby Kalinganagar in Odisha and in Jamshedpur in Jharkhand, its bid may face hurdles in the Competition Commission of India.
Tata Steel, which was raising close to $2 billion, would have to match the bids of ArcelorMittal and Vedanta, a source said.
The liquidation value of Bhushan Steel has been pegged at Rs 150 billion, which means the bidders will have to quote above this price. The bidder offering the most upfront money to banks will receive higher weight than a bidder offering to invest in the company. Lenders are expected to take a haircut of close to 60 per cent on their debt to defaulting steel companies.
Bhushan Steel shares have climbed 21 per cent to Rs 69 a share in the last three months as speculators expect a turnaround with a new management in place.
Source: Business Standard / Metal Junction