ArcelorMittal says it faces risks in proposed ESIL acquisition

New Delhi: ArcelorMittal, the world's largest steel company, says it is facing a variety of risks such as excess capital commitments and delays in reaching commercial objectives on it proposed plan to acquire the bankrupt Essar Steel India Ltd (ESIL). The committee of creditors (CoC) has approved the global steel giant's plans to acquire ESIL, through a joint venture with Nippon Steel & Sumitomo Metal Corp (NSSMC), in a bankruptcy resolution process, while it is pending before the National Company Law Tribunal (NCLT).

"Operation is ambitious"

"Should the resolution plan be implemented, as is currently expected, it would subject ArcelorMittal to various risks. On the operational front, the industrial project to turnaround ESIL and further improve operational profitability is large-scale and ambitious," ArcelorMittal's annual report said.

"The risks in this respect are compounded to an extent by the fact that ESIL is emerging from bankruptcy and it will be owned and operated by a joint venture with attendant risks around strategic alignment, potential discord and deadlock,"

With ArcelorMittal's "substantial experience in turnaround situations", the company indicated that the scale of this one is particularly large and it is the company's first large-scale acquisition in the country, an emerging market.

Uncertainties and risks on financial front too

"The risks in this respect are compounded to an extent by the fact that ESIL is emerging from bankruptcy and it will be owned and operated by a joint venture with attendant risks around strategic alignment, potential discord and deadlock," the report added.

There are also uncertainties and risks on the financial front, regarding ArcelorMittal's exposure (through equity investment in the joint venture and the possible guarantee of the JV's debt).