Mega Company Turnaround - Essar Steel India
Vivek Kamra, Alvarez and Marsal India Private Ltd
Dilip Oommen, ArcelorMittal Nippon Steel India Ltd (Erstwhile Essar Steel India Ltd)
Kshitij Mohan, State Bank of India
Srinath Narasimhan, Edelweiss Asset Reconstruction Company Limited
Dhananjay Kumar, Cyril Amarchand Mangaldas
Sapan Gupta, Shardul Amarchand Mangaldas & Co.
Soummo Biswas, Shardul Amarchand Mangaldas & Co.
Satish Kumar Gupta
Nikhil Shah, Alvarez and Marsal India Private Ltd
About the Turnaround:
Manufacturing giant Essar Steel India, Ltd., India’s fourth-largest steelmaker, has produced steel used in some of India’s most iconic public works projects, such as the Bogibeel Bridge, India’s longest railway bridge; bulletproof steel used in armored vehicles; and many of India’s most recognizable consumer and industrial products. So, when ESIL was pushed into insolvency in August 2017—at the time, India’s largest insolvency—the entire country took notice. Not only were the futures of ESIL and its approximately 12,000 employees at stake, but so was the viability of the country’s new, yet untested, Insolvency and Bankruptcy Code (IBC), adopted only a year before.
With outstanding debt of approximately $7 billion (assumed $1 = INR 70) owed to a plethora of India’s top financial institutions, private lenders, foreign investors, and approximately 1,900 operational creditors, “Nobody could brush this case aside,” one creditor committee member told Mint (12/23/19). “It was a lot of money coming back into the banking system and the government was forced to sit up and take notice.”
International turnaround firm Alvarez & Marsal (A&M) was selected as advisor to the court-appointed resolution professional, Satish Kumar Gupta. A&M restructuring lead Nikhil Shah, along with steel industry expert Vivek Kamra, assembled a team of 25 operators, consultants, and accountants to manage the insolvency process. Working with ESIL management, led by Managing Director Dilip Oommen and the committee of creditors, they preserved and enhanced the value of the company while maximizing recoveries through an efficient insolvency process.
Addressing ESIL’s myriad structural and operating challenges, which included unpaid creditors and vendors, acute liquidity shortages, deteriorating physical assets, and plummeting employee morale, the turnaround team conceived a three-phase transformation and solvency plan. First, the company was stabilized through the implementation of creditor interest moratoriums while negotiating with vendors to ensure ongoing production. The company then eventually shifted to a growth strategy that improved profitability through increased throughput and cost restructuring. Eyeing an eventual sale, the turnaround team finally focused on cost optimization, overhauling ESIL’s supply and distribution chains. All of this was accomplished while placing a premium on communications with employees, creditors, and vendors.
After 865 days in insolvency, ESIL emerged on December 16, 2019, with a 25% production volume increase. The company’s ultimate acquisition by ArcelorMittal and Nippon Steel (AM/NS) resulted in more than 85% recoveries by financial creditors and 20% recoveries for operational creditors. Perhaps more importantly, the successful restructuring and sale provided a strong validation of India’s nascent insolvency laws, reassuring creditors, investors, financial markets, and governments worldwide that the new system worked.