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Essar Steel Bid - Nippon Steel competition heats up- The 19th China (Guangzhou ) Int’l tube & pipe Processing Equipment Exhibition
4/24/2018 管材展-鋼管展-steel tube expo-tube &pipe expo |
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Nikkei reported that Nippon Steel & Sumitomo Metal and ArcelorMittal, the world''s biggest steelmaker, announced on April 2 that they would bid again for Essar Steel India. But the two now face competition from India''s JSW Steel, which has also decided to bid for the troubled company. For Nippon Steel, the acquisition of Essar, India''s fourth-largest steelmaker, is crucial to its new midterm management plan. Market players are becoming increasingly wary of the purchase falling through.
Nippon Steel and ArcelorMittal agreed on March 2 to set up a joint venture to acquire Essar, which is in the process of bankruptcy proceedings. However, Essar''s creditor committee decided to solicit new bids, saying that all previous bidders were ineligible.
The committee is expected to decide on the winning bid by the end of April.
Nippon Steel & Sumitomo Metal is desperate to win the bid as the acquisition is included in its new midterm management plan, which began this fiscal year. If the purchase fails or terms sour, the company may have to revise its midterm plan.
The highlight of the plan is a roughly 600 billion yen (USD 5.61 billion) business investment over the next three years. Nippon Steel''s "aggressive midterm management plan," in which business investment was increased threefold from the previous plan''s record of roughly 210 billion yen, attracted investor interest.
Domestic steel demand is strong, particularly in the automobile and construction sectors, but high growth is unlikely. Developing overseas operations is imperative, but the company is facing stiff competition from Chinese and South Korean steelmakers.
India, which is expected to see rapid growth on the back of a rising population, is a vital market for Nippon Steel.
A Nippon Steel executive said that "Building a blast furnace from scratch will require at least 1 trillion yen. Essar Steel has a production capacity of 10 million tons, but we can buy it for a bargain because it is bankrupt.”
Rival JSW, in which Japanese steelmaker JFE Holdings has a stake and which lost out to Tata Steel in a bid for Bhushan Steel, is hoping to regain lost ground by purchasing Essar.Mr Atsushi Yamaguchi of SMBC Nikko Securities said that "The price could exceed initial projections.”
In March, Nippon Steel said it will make equity-method affiliate Sanyo Special Steel a subsidiary and will acquire all shares of Swedish special steelmaker Ovako.
Keiju Kurosaka of Mitsubishi UFJ Morgan Stanley Securities predicts that acquiring the two steelmakers will cost Nippon Steel around 100 billion yen, and buying Essar will cost another 200 billion yen or so. If the purchase price goes up, it could take Nippon Steel more time to recoup its investment.
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