NEW DELHI: Global steel giant ArcelorMittal has said that it is staring at various risks including excess capital expenditure and delays in achieving commercial objectives in view of its proposed acquisition of debt-laden Essar Steel India.
The steelmaker’s proposal to take over Essar Steel India (ESIL), via a joint venture (JV) with Nippon Steel & Sumitomo Metal Corporation (NSSMC), in a bankruptcy resolution process has been approved by the committee of creditors (CoC) and is pending before the National Company Law Tribunal (NCLT).
“Should the resolution plan be implemented, as is currently expected, it would subject ArcelorMittal to various risks. On the operational front, the industrial project to turnaround ESIL and further improve operational profitability is large-scale and ambitious,” ArcelorMittal’s annual report said.
While the company has “substantial experience in turnaround situations”, it pointed out that the scale of this one is particularly large and it is the company’s inaugural large-scale acquisition in India, an emerging market. The risks in this respect are compounded to an extent by the fact that ESIL is emerging from bankruptcy and it will be owned and operated by a JV with attendant risks around strategic alignment, potential discord and deadlock, it added.
On the financial front, there are uncertainties and risks in respect of ArcelorMittal’s exposure (via equity investment in the JV and possible guarantee of the JV’s debt).