KOLKATA: Essar Steel’s insolvency resolution process is poised at a crucial juncture with fresh bids likely to be invited for the steel company, but the Tata and VedantaBSE -0.49 % groups are unlikely to join the bidding fray.
ET had reported that the resolution professional had told Essar Steel’s lenders that both the bids — Numetal, led by VTB, Russia’s leading investment bank, and ArcelorMittal — were found to be not eligible, thus effectively re-opening the bid process and the bankers had hoped that their entry would drum up the value of the stressed asset.
While lenders have expressed hope that this will throw the bidding process wide open with more aspirants joining the fray, it remains to be seen if the likes of Tata SteelBSE -1.85 % and Vedanta are keen to bid.
Analysts pointed out that Tata Steel may already have a lot on its plate with successful bids for Bhushan Steel and Bhushan Power. If Tatas finally bag the two companies, it is likely to cost them upwards of Rs 59,000 crore. Coming on top of its own expansion in Kalinganagar, it would take Tata Steel to the top league in terms of domestic production capacity with nearly 25-26 million tonnes.
Analysts are worried it could stretch its total debt to Rs 1.3 lakh crore in the next one-two years from Rs 76,000 crore now.
“It is premature to comment,” TV Narendran, Tata Steel’s global CEO told ET on Tuesday from London when asked about a possible Tata bid for Essar SteelBS .
However, a Tata Sons source who did not want to be named said it is highly unlikely for the group to look at this asset. “We have our hands full,” he said.
An email to Tata Steel did not elicit any reply. Tata Sons spokesperson declined to comment.
While the Tatas would gain from a presence in the west with Essar, it is an older plant and there are a few group units already catering to demand in the west. Bhushan Steel’s captive mines and its relatively newer plant may have been a bigger draw, a source close to the developments said.
Tatas have bid for Bhushan Power with a resolution plan worth Rs 24,500 crore. It has also emerged as the top bidder for Bhushan Steel with an offer of nearly `35,000 crore. Tata Steel is also raising `12,800 crore through a rights issue to reduce debt and fund its acquisition of stressed assets. Tata Steel’s current capacity in the domestic market is 13 million tonnes (mt). With the two Bhushan bids, it would add another 7-8 mt taking its capacity to 21 mt. With Kalinganagar expansion on stream, it is tipped to add another 5 mt capacity in 4-5 years’ time.
Analysts tracking the stock said that the company’s strategy does appear a bit aggressive. Jayanta Roy, senior VP, ICRA, told ET: “If Tata Steel manages to win both Bhushan Steel and Bhushan Power and Steel, its capacity in India will almost double in next 4-5 years after taking into consideration the second phase of the company’s Kalinganagar project.”
For Tata Steel, the availability of stressed assets is happening close to each other, the analyst said. “Apart from the financial part, if successful, the new acquisitions would involve different locations, different product segments and a substantial capacity hike. Tatas would perhaps stretch themselves too thin. Add to this expansion in Kalinganagar where Tata Steel has already built common facilities to support a larger production capacity. It would have been easier to manage had it been spread over 5-6 years,” said a metals analyst who tracks Tata Steel but did not wish to be named.
The Vedanta group is not keen either to acquire Essar Steel if the auction process goes for rebidding. While it had picked up the bid document earlier, Vedanta did not submit a bid. A senior source close to the deal at Vedanta said that Essar will be an expensive bid at around Rs 45,000-50,000 crore and the group may not be keen to do so.