Essar to spend $750m to revive Zimbabwe group

Essar, the Indian conglomerate, plans to spend at least $750m to revive Zimbabwe’s stricken state-owned steel company in a deal that advances Asian groups’ thrust into Africa.

The agreement will see the Mumbai-based telecoms-to-refining conglomerate take majority stakes in joint ventures that will take over the assets of the Zimbabwe Iron and Steel Company.

It accelerates the Indian private sector’s push into a continent where Chinese state-owned groups have made the running in the race for markets and resources.

“We believe the new ventures will be well positioned to be a low-cost steel producer that can meet the growing demands of the regional steel market and capitalise on the forecast growth in sub-Saharan Africa,” Firdhose Coovadia, Essar’s resident director for the Middle East and Africa, said.

Essar’s Zimbabwean venture expands an African presence that includes coal assets in neighbouring Mozambique, oil projects in Nigeria and Madagascar and a telecoms business in India.

The group, controlled by the Ruia brothers, its billionaire founders, saw off rival bidders including ArcelorMittal, whose main owner is Lakshmi Mittal, the steel mogul.

Robert Mugabe, Zimbabwe’s president, said last year that Arcelor was “too big” for the country.

Essar planned to spend an initial $750m restarting steel manufacturing operations that had sunk into disrepair, a person familiar with the plans said.

Mr Coovadia acknowledged that this would be a “challenging task”.

It aims to bring the plants, which have capacity to produce 1m tonnes of steel, back into operation within 12 to 15 months and to target the African market.

Essar’s steel arm aims to increase production to 14m tonnes per annum from 8.6m by next year.

Like peers including Tata Steel, India’s biggest producer, Essar is seeking to lock in supplies of iron and coal – the raw materials of steelmaking – at a time when high commodity prices are eroding margins.

As well as a 60 per cent stake in a steel joint venture with Zimbabwe’s government, Essar will take an 80 per cent holding in a separate joint venture that will control the former state-owned group’s mineral resources, potentially affording it access to what are thought to be Zimbabwe’s substantial iron ore stocks.

Welshman Ncube, industry minister in a fractious power-sharing government between Mr Mugabe’s party and the former opposition led by Morgan Tsvangirai, prime minister, said Zisco was “totally, completely insolvent”.

Essar will assume the company’s debts, which Mr Ncube said were in excess of $340 million.

The company was worth only about $45m, he said.