Billionaire Ruia’s steel arm to draw Tata, JSW interest

New Delhi / Bloomberg

Essar Steel India Ltd., grappling with about 440 billion rupees ($6.6 billion) in debt amid an industry downturn, has drawn takeover interest from domestic rivals Tata Steel Ltd. and JSW Steel Ltd., people with knowledge of the matter said.
SSG Capital Management, a Hong Kong-based special situations fund manager, and some private-equity firms and international companies have also expressed initial interest in Essar Steel, according to the people. Some suitors plan to ask Essar Steel’s lenders to write off 25 percent to 30 percent of its debt, two of the people said, asking not to be identified as the information is private.
Earnings at Essar Group have been hurt by a fall in commodity prices, weak demand and lower capacity usage at its units. The Indian conglomerate, controlled by billionaire brothers Shashi and Ravi Ruia, invested about $18 billion from 2008 to 2012 to expand its operations in steel, oil and power.
Suitors may offer to pay no equity value for Essar Steel, given its level of indebtedness, according to three of the people. Potential buyers are also considering asking lenders to swap some of Essar Steel’s debt for equity, one of the people said.

Strategic Investors
Essar Steel said in November it hired ICICI Securities Ltd. and SBI Capital Markets Ltd. to bring in new strategic or financial investors. Essar Group hasn’t yet sent out an information memorandum to interested parties, according to one of the people. The conglomerate hasn’t made a final decision on whether to sell the steel business, and it’s possible no deal will be reached, the people said.
Essar Group declined to comment in an e-mailed statement on the suitors for its steel unit, saying the process of finding investors has started but is still at an early stage. When asked about potential bidders seeking a partial write-off of Essar Steel’s debt and assigning no equity value to the business, the company said the information is “totally incorrect,” without elaborating.
JSW Steel Joint Managing Director Seshagiri Rao didn’t respond to an e-mail seeking comment, while a spokesman for the company said he couldn’t immediately comment. Representatives for Tata Steel and SSG Capital declined to comment.

Soured Debt
A number of Indian lenders have marked loans to Essar Steel as soured debt in the past year, people with knowledge of the matter said earlier this month.
Essar Steel has an annual production capability of 10 million tons and is supported by a 20 million ton per annum pellet facility.
Essar Steel recently made a debt restructuring proposal to its lenders and is “working closely” with bankers, according to Essar Group’s statement.
Lenders have approved 150 billion rupees of loans to Essar Steel under the Indian central bank’s so-called 5:25 scheme, which allows increased flexibility when structuring debt for industrial companies, it said in the statement.
India imposed a minimum import price on steel products in February to help stem a surge in cheaper shipments coming from overseas. An economic slowdown in China, the biggest producer and consumer of metals, has hurt the global steel industry as the country exports its surplus amid weak
domestic demand.