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Mr Malay Mukherjee shares his views on stressed steel assets in India

Steel News - Published on Tue, 13 Mar 2018

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Money Control reported that noted steel industry veteran Mr Malay Mukherjee in an interview with Moneycontrol said that the sale of stressed assets is a great opportunity to strike a balance and ensure that the Indian steel industry fulfills its promise. He said “I certainly believe that it is a good thing for the Indian steel industry. We are far from exploiting the total potential of the industry, especially if we have to cater to the increasing demand. Even now our per capita consumption of steel is about 80 kg, way below the world average, or China's. Unfortunately, what has happened is that some promoters have not applied financials controls, were over-leveraged and created a pretty unfavorable judgment of the Indian steel industry, vis-à-vis the global market. Many of the promoters think only about themselves.”

He added “This step is in the right direction, to increase transparency and finding the right investor who has professional and technical expertise in running the companies, in keeping view interests of all the stakeholders.”

Q - You mentioned that we need to have a balanced steel manufacturing industry. What does that mean?

A - For balance in the steel industry, we need a level playing field – in access to infrastructure, raw materials. And this should be done in a manner where we don’t promote one company, and create inefficiency in another. For instance, there can't be a structure where someone who didn’t have capital to buy a mine, is now barred from buying iron ore forever. Talking about promoters, many of them blame the steel cycle for the distress. But the steel business is such that you have to contend with the business cycle. You can’t really blame the cycle when others have been able to manage.

Q - Some of the stressed assets have seen intense competition. Tata Steel's bid for Bhushan Steel is deemed high. What is your observation?

A - Tata Steel’s bid for Bhushan Steel may look like a over-bid at the first glance. But then the Tatas have certain basic advantage over other companies. They have access to captive mines, and in Odisha – where they already have a facility – they can create a major hub. (Bhushan Steel also has facilities in Odisha). So the capital spend will be compensated by lower operating costs. Tata Steel has the bandwidth to tune the operations and make marketing more structured. If it was any other company that has bid so high, then the analysis would have been different.

Q - Do you think JSW Steel could have been more aggressive (Mukherjee is an independent director at the company)?

A - In JSW Steel’s case, they have always been building assets. They are very good in building world class assets at lower costs. So they are not going to pay extra to buy an asset. It is a choice.

Q - Coming to Essar Steel's auction, ArcelorMittal, which is one of the bidders, has highlighted its global experience in turning around operations. Given your experience at the company, could you give an insight into this?

A - From a historical point of view, ArcelorMittal took over plant facilities that were owned by Governments, and turned them around. This was the model in Trinidad, Mexico, Kazakhstan, and even in developed markets like Germany. The turnaround was operational – increase capacity and bring down costs. Later on, ArcelorMittal’s strategy was to make the best product in steel, in addition to turning around operations. This was the case in the US. Overall, ArcelorMittal’s turnaround strategy has been about operations, financial discipline and products. It also helps that they have the world’s largest R&D facility for a steel company. If you have all this, then it’s a no-brainer that the best partner for Essar Steel is ArcelorMittal.

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Posted By : Rabi Wangkhem on Tue, 13 Mar 2018
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