The year 2010 seemed to have ended well for the Indian metals industry, which saw a number of deals being executed, despite the continued slowdown in the US and Europe.
The 2010 Christmas will definitely be merrier for the Mittals, the promoters of debt-ridden Ispat Industries who were struggling with lack of funds to run their plant and repay high debt (Rs 7,500 crore) to lenders. Sajjan Jindal-led JSW Steel, India?s third largest steel manufacturer, finally took over Ispat for Rs 2,157 crore to become India?s largest private sector steel manufacturer.
The deal, which is termed as ?historic’ for the steel industry, came as a surprise to many. Manish Makharia, executive director, Kotak Investment Banking, said, ?The JSW Steel ? Ispat deal has set a precedent for consolidation in the Indian steel industry. It?s a good strategic combination, with a lot of value expected to get unlocked. Such deals are rare and it is expected to be value accretive for stakeholders.?
Apart from big mergers and acquisitions (M&As), the year 2010 also saw joint ventures (JV) during the year where Tata Steel, in continuation of an industry-wide trend, formed a JV with Japan?s Nippon Steel for production and sales of automotive cold-rolled flat products at Jamshedpur. Similarly, public sector major Steel Authority of India (SAIL) also signed an MoU with Japan?s biggest steel producer Kobe Steel for working together in the field of technology and projects.
According to industry players, India has been stated to be the automotive hub in the making. With low cost labour and, possibly, captive raw material sources, setting up automotive steel product manufacturing facilty makes perfect sense, complemented well by the know-how of one of the largest manufacturers in the world. Even the Ruias controlled Essar Steel entered into an MoU with Kobe Steel to produce autograde steel in India. ?The auto industry is expected to be a major driver for steel demand in the years to come. The MoU will further strengthen Essar Steel?s product portfolio to enable it to produce steel for high-end applications in the auto segment,? Malay Mukherjee, CEO, Essar Steel Business Group said.
Meanwhile, with the aim to expand its service centres, Essar Steel in June 2010 also acquired UK-based Servosteel, the largest independent steel processor. Ruias-led Essar Global also acquired US-based Trinity Coal for $600-million, a move which will help the firm meet its rising raw material requirement for its steel business. In an unexpected move, metal giant Vedanta diversified its business by picking a controlling stake in energy explorer Cairn India for $9.6 billion. Anil Agarwal, executive chairman of Vedanta said, ?The proposed acquisition significantly enhances Vedanta?s position as a natural resources champion in India. Cairn India will benefit from Vedanta?s track record of acquiring and growing world class companies, especially in India.?
And ArcelorMittal, the world?s largest steel manufacturer, revised its strategy in India. Instead of concentrating solely on two mega-projects, the steel major would now focus on smaller hubs, with the first domestic production expected in 2013.
Aditya Mittal, CFO of ArcelorMittal, in a presentation at the company?s Investors Day 2010 in London and New York said, ?We now plan smaller steps of 1.5 to 3 million tonnes per annum (mtpa) module.? Experts see 2011 to again be an action packed year with more cross border deals on the cards.