Billionaire Lakshmi Mittal-controlled steel giant ArcelorMittal has made concessions to beleaguered Essar Steel in the US. After initiating legal proceedings for a claim worth more than $1 billion from Essar Steel Minnesota (ESML), citing unmet iron ore supply pacts, ArcelorMittal has now agreed to a compromise, in effect lowering the claim by as much as 40% to $605 million.
The development assumes significance because Essar Steel Minnesota is now reorganising in a US bankruptcy court as 'Mesabi Metallics' and a pact with ArcelorMittal helps it avoid expensive legal battle and headline risk.
Speaking exclusively to DNA Money, an ArcelorMittal spokesperson said: "ArcelorMittal is pleased to reach an agreement without litigation with Mesabi Metallics' bankruptcy estate on the amount of ArcelorMittal's allowed claim."
As per the legal document submitted to the court on July 5, a copy of which was seen by DNA Money, the ArcelorMittal claim shall be allowed as a "general unsecured claim in the amount of $605 million". The agreement also says that the debtors have analysed the underlying contracts and believe that the allowed amount of the ArcelorMittal claim, as fixed by the agreement, is "fair and reasonable". The US court is expected to ratify the agreement.
In September 2016, ArcelorMittal had filed its more than $1 billion claim arguing that its North American operations had to buy costlier iron ore from others even after having a firm agreement with Essar Steel. In February 2013, Essar Steel Minnesota had gone to town with a 10-year iron ore off-take pact signed with ArcelorMittal. The deal at that point in time was seen as providing a major boost to Essar Steel Minnesota that was constructing a 7 million metric ton per annum iron ore pellet plant at Nashwauk in Northern Minnesota at an investment of over $1.5 billion.
However, things went downhill from there. Essar worked on the Nashwauk project for over seven years but then was forced to walk away in late 2015. By then it was out of cash and had accumulated over $1 billion in loans. Essar Steel Minnesota filed for Chapter 11 bankruptcy last July.
Essar Steel in India is fighting a high-stakes battle against insolvency proceedings initiated against it at the National Company Law Tribunal.
Source: DNA