Tata SteelBSE 0.42 %, India’s second-largest private steelmaker, has expressed interest in bidding for debt-ridden Essar Steel, whose lenders have filed for revival of the company under the Insolvency and Bankruptcy Code, two people with knowledge of the development said.
“Tata Steel has informally conveyed to us their interest in bidding for Essar SteelBSE 0.41 %,” a senior executive at one of the lenders told ET.
An investment banker familiar with the matter said Tata Group’s new chairman, N Chandrasekaran, is keen to get back the ‘top steelmaker’ tag that it lost to JSW SteelBSE 1.34 %.
Essar Steel, which operates a 10 million tonnes per annum (MTPA) facility in Gujarat, is facing insolvency proceedings after it failed to service debt. Tata Steel is currently undertaking projects to raise capacity to 18 MTPA from 13 MTPA now. If the steelmaker acquires Essar Steel, it would take Tata Steel’s capacity to 28 MTPA, well past JSW’s 18 MT.
A spokesperson for Tata Steel neither denied nor confirmed its interest in bidding for Essar Steel. However, the spokesperson added: “Tata Steel evaluates various strategic opportunities on an ongoing basis.”
Tata Steel had earlier openly expressed its intention to grow the business, both by expanding capacity and by acquiring financially stressed companies, as it bets on government spending to build affordable homes and infrastructure projects, besides the decision to allow Indian companies to participate in defence projects and development of ports and railways.
Acquiring Essar Steel will give Tata Steel easier access to the market in west India, as all its domestic production capacity is situated in the eastern part of the country where it has iron ore and coal mines.
While the company benefits from being close to natural resources, it spends a lot more on distribution of finished products.
“We are seriously looking at inorganic growth and scaling (up) the Kalinganagar plant,” said Chandrasekaran at Tata Steel’s annual general meeting earlier this month. When shareholders asked if he would consider buying stressed steel assets, including Essar Steel, he had said he was open to everything.
Tata Steel is looking to expand capacity at its Kalinganagar plant in Odisha to 8 mtpa from 3 mtpa now.
India’s steel industry is showing signs of revival after a particularly tough year, during which it fended off Chinese imports. The government’s focus on infrastructure and affordable housing has helped stoke demand while anti-dumping moves have boosted local industry.
Several Indian steelmakers are keen to expand locally by acquiring stressed assets as demand is expected to outstrip supply.
Essar Group, too, is interested in bidding for Essar Steel. “We are negotiating a restructuring package with lenders. We will compete with others,” Prashant Ruia, executive director at Essar Group, told ET in an interview on Wednesday.
Others are also interested in bidding for steel companies admitted to National Company Law Tribunal.
Billionaire Sajjan Jindal’s flagship JSW Steel is in advanced talks with a distressed fund, jointly floated by Piramal Enterprises and Bain Capital Credit, to bid for Bhushan SteelBSE 0.00 %, which was recently admitted to bankruptcy courts for possible revival.
Tata Steel shares have jumped 64% in the past year on the back of revival in local demand and slowing Chinese imports. They rose 2.3% before closing at .`633.40 Wednesday on the BSE.
Source: Economic Times