Russian financial services company VTB Capital is joining hands with the Essar promoters — the Ruia group — to bid for Essar Steel, it is learnt.
The Ruias have submitted an expression of interest for Essar Steel along with a letter of comfort from VTB Capital, the investment arm of the VTB Group. Details of the shareholding and structure of the consortium would be worked out at the time of putting up a non-binding bid, said sources close to the development.
The last date for submitting an expression of interest for Essar Steel, currently going through the Reserve Bank of India-mandated insolvency process, was October 23.
A spokesperson for Essar was not available for comment.
The VTB Group is a global provider of financial services, comprising more than 20 credit institutions and financial companies operating across all key areas of the financial markets. VTB enables the group to facilitate international partnerships and promote Russian companies aiming to engage with the global market. This is not the first time that Essar would be teaming up with the VTB group.
VTB Capital had acted as the sole M&A advisor to Essar Energy Limited on their $12.9-billion sale of 98 percent of Essar Oil, Vadinar Port and Vadinar Power to Rosneft Oil Company, Trafigura Beheer BV, and United Capital Partners. Also, VTB Bank, which is 60.9 percent owned by the Russian government, provided a facility agreement to provide up to $3.9 billion for refinancing debt at Essar Global Fund Ltd in preparation for the sale of Essar Oil.
VTB is also not new in India. VTB Bank decided to close down an office in India last year in order to cut costs, but said that its focus in the country would be on commodities and investment banking. GMR Enterprises Pvt Ltd, part of the GMR group, has also worked with VTB Capital in raising Rs 220 crore in structured debt financing from the Russians. In 2016, VTB Capital was in the top five merger and acquisition list of Bloomberg following the Rosneft deal.
The Essar promoters, however, would be facing some competition. There are quite a few companies that have submitted expression of interests (EoIs) for Essar Steel. Tata Steel is understood to be among them. A Tata Steel spokesperson said, “As a process, we do assess and evaluate various strategic opportunities for growth. This is an ongoing process in the company.” Vedanta and ArcelorMittal are also likely to have submitted EoIs. A mail sent to Vedanta went unanswered while a spokesperson for ArcelorMittal could not be reached for comment. Even AION-the joint venture between ICICI Venture and Apollo Global with assets under management of $232 billion have shown expression of interest in the company.
Essar has an installed capacity of 10 million tonnes for making iron and 9.7 million tonnes for steel. Bagging Essar could mean scaling up capacity for Tata Steel in a major way or a toehold in a growing market for companies like ArcelorMittal and Vedanta.
However, the Essar promoters were confident of retaining control of the company. After the conclusion of the Rosneft deal, Prashant Ruia, group chief executive officer and managing director, had said that he was confident of submitting a resolution plan for the company. The VTB partnership is a step in that direction.
Some analysts, however, argue that the Essar group has ring-fenced the steel business as the port, power and the raw material back-end used by the steel plant is controlled by other Ruia companies that are not up for sale. This clearly means that any bidder has to depend on the Ruias if they win for their power, port facility as well as the raw material supply. According to some PE funds, this could be a dampener though most of these companies are independent entities and have deals which are independent of each other.
