EXCLUSIVE: INDIA’S POWER CLAN TALKS ABOUT ALGOMA IN ITS EMPIRE
Essar Global hopes to use Canada as platform for much greater expansion in North America, and elsewhere
The Globe and Mail, Thursday, May 10, 2007
SONYA FATAH
NEW DELHI — Prashant Ruia, scion of one of India’s richest families, has some advice for Canadians worried about corporate hollowing out – relax.
His family’s conglomerate, Essar Global Ltd., has joined a growing number of foreign companies snapping up Canadian enterprises, but he says that’s because the country is a good place to do business. Investing in Canada is about good opportunities, growing markets and healthy risk indicators, he says.
“We think Canada is a safe market and we see no substantial political or economic risk in investing there,” said Mr. Ruia, a director of Essar Steel and the son of one of the conglomerate’s founders, Shashi Ruia.
In mid-April, Algoma Steel Inc. of Sault Ste. Marie, Ont., agreed to a purchase offer of $1.85-billion from Essar, which would become the largest Indian deal ever done in Canada.
Essar Global operates in 14 countries, with group assets of $12-billion (U.S.) to $15-billion and 20,000 employees. With the Algoma purchase, though, the family hopes to use Canada as a platform for much greater expansion in North America, and elsewhere.
“We are positive about the investment environment in Canada and we think there is a strong domestic market, and it gives us access to North American markets as well,” Mr. Ruia said in a rare interview for the very private family.
As they set out to achieve this goal, though, the Ruias – a family worth an estimated $8-billion – are also aware of Canadian fears following the series of buyouts by foreign firms.
“About 15 to 20 years ago when the Japanese started buying up major properties in L.A. and New York there was a lot of fear in the United States,” Mr. Ruia noted.
“But at the end of the day, nothing happened because the market was too large and there were lots of investment opportunities.”
Moreover, a more globalized world with increased free trade would automatically result in such buyouts, he said, and pointed out Thomson Corp., the Canadian-controlled digital media giant, has offered to acquire Britain’s Reuters.
“Essar Group has built up positions in the Indian economy and in the economy of the region by spotting areas where we expect to see solid, continuing long-term growth, and investing astutely for the long term,” Mr. Ruia said.
“It’s worked well … and we can see no reason to stop there. With this base we can build global businesses in our chosen business areas – areas that are central to the economy of any developed or developing nation.”
Their breakout business is steel, based on a belief that demand is rising and a wave of consolidation is sweeping the global industry.
“On the global front, we are looking to consolidating the areas of business that we are already in,” Shashi Ruia, the company’s chairman, said in a separate interview.
“We add synergy and value to the whole enterprise. For that we have been formatting ourselves to becoming international players and so far, Algoma – if it goes through – will be our first major acquisition.”
In mid-January 2006, the family began acquisition talks with Algoma that lasted two months. They followed up the Algoma bid with a buyout of Minnesota Steel, giving them a solid beachhead in North America and an entry to the auto industry. The company already has a plant in Indonesia that has a 400,000-tonne cold-rolling facility and a 150,000-tonne galvanizing facility. Two greenfield projects in Vietnam (a hot strip mill with an annual capacity of two million tonnes) and Trinidad and Tobago (an integrated steel plant with an annual capacity of 2.5 million tonnes) are under way. Outside of steel, Essar has made moves in the oil business. It has exploration and production blocks for oil and gas in Myanmar and Madagascar, and commissioned its first oil refinery in December.
“We are interested in core commodities like steel and oil and some service business because we believe there are great opportunities in services, and some annuity business like shipping and power,” Shashi Ruia said. “The mix of the three is what we have planned as a strategy for growth.”
Their plans – and confidence – got a big boost in February when Li Ka-shing, the Chinese tycoon who was a partner in Hutchison Essar, India’s third-largest mobile phone company, announced that he was selling his 67-per-cent stake. A resulting bid from Vodafone raised the value of the Ruias’ 33-per-cent stake from $2-billion to $6.3-billion.
In 2006, Shashi and Ravi Ruia were in slot No. 245 on Forbes’ list of the world’s richest people, with a collective fortune of $2.8-billion. But that was last year. Today, the brothers’ net worth has galloped to $8-billion, and they’ve vaulted several notches up the Forbes ladder, to No. 86 this year.
“Where we see opportunity to apply our skills and enjoy the benefits of vertical integration, we will do so,” Prashant Ruia said. “Essar businesses help out sister businesses, cutting out the middleman and of course his profit margin. In this way, Essar’s power generation business supplies Essar’s steel mill, itself supplied by Essar Energy, with fuel offloaded by Essar’s own port operator.”
Things have not always been so good for Team Ruia. At the turn of the new century, Essar Steel, the current darling of Essar Global, was in financial distress. It earned the not-so-flattering honour of being the first Indian company that failed to repay floating-rate notes of $250-million. But that is very much a part of history these days at Essar. The debt has been repaid and there has been much introspection at Essar House in Mumbai.
“Don’t be anxious to jump into a new venture when the market is bullish and interest rates are high,” Shashi Ruia said when he talked of resolutions made as a result of that period.
“I hope one learns from one’s mistakes,” he laughed.
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A business heritage
The Ruias are heirs to a business with roots going back to the 19th century. When Nand Kishore Ruia died in 1967, his sons, Shashi and Ravi, took over. Essar, which stands for the brothers’ initials, was born in 1969, with a focus on construction and shipping, and went on to expand into power, steel, oil and gas, and telecom. When the liberalization of the Indian economy began in the 1990s, the conglomerate was well positioned to ride the dynamic growth that followed.***
A family affair
As the Essar Group expands globally, it brings with it some of the classic appendages of India’s biggest conglomerates – the family. Shashi Ruia’s two sons, Prashant and Anshuman, have been working at Essar for many years and sit on several of the companies’ boards. Ravi Ruia’s son Rewant is a recent addition to the Essar team. His daughter, Smiti, who once worked as an analyst at Lehman Brothers and obtained a masters in publishing from the London College of Printing, is the force behind a smaller, more unusual Essar venture called Paprika Media, launched in March, 2004. The media company launched TimeOut Mumbai six months later and recently introduced TimeOut Delhi. Ms. Ruia has plans to launch the fortnightly lifestyle and events magazine in other Indian cities as India’s consumer market continues to boom.
Sonya Fatah
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