Vedanta to sell Electrosteel Steels Ltd

Four years after scooping up Electrosteel Steels Limited to make a big splash in the steel industry, Anil Agarwal-led Vedanta Group has decided to sell business to focus on its core mining and industrial businesses and deleverage the balance sheet which had a debt of $11.7 billion at March-end, said people with knowledge of the matter. The group has approached steel companies such as Arcelor Mittal Nippon Steel (AMNS), Tata Steel, JSW and Jindal Steel and Power Limited, and a select group of financial investors, said the people. Top executives like ArcelorMittal CEO Aditya Mittal have also visited the site along with Vedanta Group officials in recent weeks, they said.

Vedanta Group said it did not want to comment on market speculation. ArcelorMittal Nippon Steel and JSW declined to comment."We don't have any acquisitions under evaluation currently", Tata Steel CFO Koushik Chatterjee told ET. Mails sent to JSPL did not generate a response till press time. Vedanta beat Tata Steel, whose facilities are next to Electrosteel, to take over ESL for Rs.5,320 crore in the summer of 2018, after the creditors took the ailing steelmaker to the insolvency process, and it became the second steel company to see completion of the bankruptcy process after Tata Steel took control of Bhushan Steel in April 2018.

Vedanta had said at the time that the acquisition will complement its existing iron ore business as the vertical integration of steel, manufacturing capabilities has the potential to generate significant efficiencies.

Electrosteel Steels was a subsidiary of Electrosteel Castings. Upon taking over, Vedanta delisted the company. Vedanta (VDL), the Indian operating company which houses the diversified portfolio of oil and gas, zinc, lead, silver, aluminium, iron ore, steel and power businesses, owns 95.5 percent of ESL Steel. Vedanta

Resources (VRL) is the London headquartered parent of Vedanta Limited and owns 69.7 percent of the subsidiary. Agarwal's family investment vehicle, Volcan, in turn owns 100 percent of VRL. The company portfolio includes pig iron, TMT bars, billets, ductile iron pipes and wire rods.

Vedanta had said at the time that the acquisition will complement its existing iron ore business as the vertical integration of steel, manufacturing capabilities has the potential to generate significant efficiencies

Electrosteel Steels had a planned steel making capacity of 2.51 million tonnes and a commissioned capacity of 1.5 million tonnes in 2018. Under Vedanta, the company has launched a massive expansion in Bokaro and Goa, and a greenfield unit in Bellary, Karnataka. The company has announced a $348 million capex investment to double the hot metal capacity to three million tonnes per annum (MTPA) from the current 1.5 MTPA, expected to be completed in this financial year. With 12 MTPA of iron ore, the focus has been on value added products for margin expansion.

Vedanta's asking price has more than doubled and the company is looking at a Rs 10,500-12,000 crore valuation, said people in the know. The premium is expected to be a potential deal breaker, they said. "At multiple times, several players have approached Agarwal for Electrosteel but he's never openly admitted he is a seller. The stress is mounting yet again. Electrosteel also has environmental issues which it has promised it will sort out before the transaction is consummated but the ask is too high at a time when we are seeing a squeeze in the credit markets", said an industry veteran, who did not wish to be identified. "However, for those looking at a footprint in the east, this would be a good buy as the company has also been expanding operations."

In September, AMNS for example, announced a $1 billion investment in the downstream sector to focus on speciality steel. The capex was meant for expansion at the Hazira plant (formerly Essar Steel), coke oven plants and acquisitions like Uttam Galva (1.2 MTPA).