Turbulence-hit ArcelorMittal may change investment direction in India

8 April 2015

The world's biggest steel company has its hands full these days cutting debt and reassuring investors about its future plans. Giantsized plants in India may not be top of the agenda. Nearly a full year after Narendra Modi swept into power and proclaimed his intention to revive manufacturing, ArcelorMittal's troubles are an indication of things that could go wrong.

Global commodity price deflation amid slow demand means big investments in steel and manufacturing will take a long time to happen. Billionaire Lakshmi Niwas Mittal had plans to set up a $12 billion steel plant in Jharkhand and $6 billion plant in Karnataka even after it pulled out of Odisha two years ago. But since then little has moved for it in India. "We remain focused on the $15 billion medium term (net debt) target.

We do not expect a significant increase in capital expenditure, a net outflow on mergers and acquisitions, or an increase in dividends until we reach $15 billion," spokesperson Narasimha Hegde told ET, when asked about the impact of debt reduction on capital spending in India.

In February, S&P downgraded the company's credit rating on lowerthan-expected profit but maintained a stable outlook, saying ArcelorMittal would generate at least neutral cash flow and avoid meaningful debt increases over the next two years.

Chairman & CEO Mittal said that capital expenditure beyond maintenance levels will be very selective, while his son and CFO Aditya Mittal said the company would continue to cut debt to $15 billion in 2015 and 2016, in a recent conference call with analysts. The steel behemoth set aside barely $500 million for growth capex in 2015. "I don't think they are serious about India. Throughout the world industry is not doing well. It is a capacity intensive industry and someone has to be cautious," said a senior official from a rival steel company in India, on condition of anonymity.

Luxembourg-based ArcelorMittal has land but no iron ore mines in Karnataka while in Jharkhand it has a prospective license to mine iron ore but no land. It lost two coal mines last year after Supreme Court order but it did not bid for any mines in coal auctions thereafter.

In ArcelorMittal's recent filing with the registrar of companies it said it was difficult to provide the expected date of commencement of commercial production since it is a subject to obtaining the necessary approvals and acquisition of land and mines to build the steel plants. "ArcelorMittal still has its Jharkhand iron ore mine.

Certain milestones have to be met so we have to move fast. Otherwise there is a threat of losing the mine.

We also can't lose land in Karnataka given how tough it is acquire land in India" said a company official, who did not wished to be named.

"We are awaiting directions from the top management but till date there has been no positive vibe." ArcelorMittal told ET that it is pursuing clearances in Jharkhand and watching how Karnataka's government evolves the new mining bill and supports greenfield projects in the state. It did not reply whether it would take part in the impending auction of iron ore mines in the state.