JSW Steel Led Consortium Bid to Acquire Monnet Ispat Approved by CCI - What Does it Means?

In a recent update on Monnet Ispat and Energy Ltd (MIEL) bankruptcy case, the CCI (Competition Commission of India) has given its approval for the acquisition bid led by a consortium of JSW Steel and Aion Capital.

The company were identified as the 12 big bad loans by RBI (Reserve Bank of India) against which bankruptcy proceedings were filed at NCLT (National Company Law Tribunal) in Jun'17. The case was filed by MIEL's lead banker, SBI (State Bank of India).

The resolution plan which was submitted by only bidder JSW Steel along with Aion Capital was approved by the Committee of Creditors (CoC) last month on 12 Apr'18.

Aion Capital is a joint venture between ICICI Venture and Apollo Global Management. While Aion Capital holds 70% stake in the consortium, JSW Steel has remaining 30%. Also, this consortium will have 75% stake in MIEL, remaining 18% will be held by the lender and 3% will be in the hands of company's existing promoters.

Monnet Ispat was started in the year 1994, and has 1.5 MnT integrated steel plant along with sponge iron plant, pellet plant, sinter plant and captive power plant in Raigarh, Chhattisgarh.

Why CCI approval is required in case of steel sector buyouts

The acquisition of stressed steel assets by their healthier peers under insolvency auction raises the fear of market dominance and creation of oligopolies. This has become the case especially in Indian steel sector where two companies, JSW Steel and Tata Steel have emerged as the successful bidders for big ticket stressed steel entities.

If these two companies acquire majority of stressed assets, it would result in price cartelisation and market dominance. While consolidation aids the steel sector in terms of pricing power, it may potentially trigger issues of unfair competition.

Thus these acquisition deals of various steel companies land under the lens of the Competition Commission of India (CCI). It implies that if CCI finds that a certain acquisition has significantly altered market dynamics leading to development of monopolies or oligopolies or development of dominant player with potential for market cartelisation, it could suggest alterations in the way acquired companies are structured, post-auction or put a price cap on the products where the acquirer gets a dominant position.