From India to Iowa: Ruias return to steel with an ambitious $18 billion US bet

The Ruias built Essar Steel into one of India's largest privately owned steel businesses before entering India’s insolvency process in 2017 and changing ownership in 2019. Now, almost a decade later, the Ruias are seeking to build a new steel business in the US with an ambitious project President Donald Trump has just announced as "the largest plant in America by far.

The Ruia family business empire began in 1969 when founders Ravi Ruia and his elder brother late Shashi Ruia started a construction and pipeline company in Chennai, which rapidly grew into the sprawling Essar Group. At its peak, the conglomerate owned a massive portfolio spanning steel manufacturing, oil refineries and retail stations, global shipping fleets, telecom networks (Hutchison Essar), power plants and major ports.

Also Read: Essar to invest $18 billion in US, build America's largest steel plant in Iowa


However, under regulatory and financial pressure during India's mid-2010s bad-loan crisis, the group sold Essar Oil to Russia's Rosneft for $13 billion and Essar Steel to ArcelorMittal, alongside shedding its telecom and telecom-tower assets.

Currently, the transformed group is spearheaded by the second generation of the family, primarily Prashant Ruia (Director) and Rewant Ruia (Director), who are steering the conglomerate's pivot into green energy and global infrastructure.

Essar’s growth to a new chapter

The Indian steel story happened along with the wider expansion of the Essar Group. During the 2000s and early 2010s, the group invested heavily in steel, oil and power. ET reported in 2017 that Essar had spent about $18 billion over the previous decade on its industrial businesses. By March that year, its long-term debt stood at Rs 1.05 lakh crore, with another Rs 30,000 crore of working-capital borrowing. The sale of Essar Oil was subsequently expected to reduce group debt substantially.

The company continued operating, its resolution professional reported EBITDA of Rs 4,229 crore during the 600-plus-day resolution period.

In November 2019, the Supreme Court cleared the way for ArcelorMittal's takeover. The resolution plan was worth about Rs 42,000 crore. Rs 2,500 crore of this was earmarked as working capital for Essar Steel, with the balance going towards creditor recovery.

Also Read: AM/NS takes over banks' claims linked to Essar Group promoters' personal guarantees

The Ruias' American entry

The story of Essar's American steel ambitions began before the Indian insolvency. Essar acquired Minnesota Steel Industries in 2007 and planned an integrated operation at Nashwauk, combining an iron-ore mine, pellet plant and steelmaking facilities. Construction began in 2008.

ET had reported in 2016 that the original project had been designed for 4.1 million tonnes of annual pellet production at an estimated cost of $1.8 billion. Essar later expanded the planned capacity to 7 million tonnes and the estimated cost rose to about $2.2 billion. ET reported that an additional $260 million of financing was required.

The market environment was deteriorating at the same time. Iron-ore prices had weakened, Chinese steel imports were putting pressure on the US market and demand for pellets was poor. Essar Steel Algoma in Canada, which was expected to take Minnesota's output under an offtake arrangement, had itself entered bankruptcy protection in 2015.

Financing eventually became the immediate constraint. Davidson Kempner had committed a $450 million financing facility, but about $80 million remained undisbursed. Indian lenders also had exposure but were reluctant to provide additional financing.

Essar had received state support, the project developed differences with the State of Minnesota. The dispute extended to Essar's mineral leases. Minnesota Governor Mark Dayton moved to terminate the company's leases after the project missed deadlines, while Essar challenged the state's action.

Essar Steel Minnesota filed for Chapter 11 protection in 2016.

Essar Group got the project back

The Minnesota operation was subsequently restructured as Mesabi Metallics, and Essar eventually returned to the project. The mine has since become the foundation for the group's renewed American steel ambitions.

Essar has invested more than $2.5 billion in the Minnesota operation. The mine has been described as Minnesota's first new iron-ore mine in 50 years.

External financing has also been raised for the Minnesota project. Mesabi has secured financing from outside investors including Breakwall Capital and Macquarie, while US government financing has also been associated with the mine's development.

The new Iowa steel project

That Minnesota mine is now intended to supply a new integrated steel operation in Iowa. Trump, along with Ravi Ruia and his son Rewant, announced on Monday Mesabi Metallics' plan for a $15 billion steel plant in Iowa. Reuters reported that the first phase is designed to produce 7.5 million tonnes of steel annually, eventually rising to 10 million tonnes. First steel is targeted for 2030. The project is expected to create about 1,750 permanent jobs, with as many as 6,000 construction jobs during the first phase.

The total Minnesota-and-Iowa investment is approximately $18 billion, with roughly $15 billion associated with the Iowa steel plant. Around $3 billion is associated with the Minnesota operation and the Ruias have already invested $2.5 billion in the operation.

Importantly, the proposed structure is vertically integrated. Iron ore from Mesabi's Minnesota mine would feed the Iowa steel plant, linking the group's American mining and steelmaking operations.

Reuters reported that the US Export-Import Bank had recently committed financing for expansion of the Minnesota mine.

The American venture is a new phase rather than a simple recreation of the old Essar Steel business. The Indian company that the Ruias lost in 2019 was a large operating steelmaker carrying substantial financial obligations. The proposed Iowa project is being built around the Minnesota iron-ore resource that Essar has spent years developing since returning to the asset.

The new proposal is considerably larger in physical scale than the original Minnesota steel plan, with a proposed 10-million-tonne eventual capacity. Its financing will have to be developed alongside construction, while the Minnesota mine provides the raw-material base. Trump's steep 50% steel tariffs might ensure steady local demand.