Cash-starved, mismanaged Ispat Industries has four bidders; but will ‘Ispat-friendly’ institutions step in to force a change in control? Ispat Industries, which has been in dire straits for many years and has merely stayed afloat thanks to the combined largesse of financial institutions IDBI, ICICI, IFCI and State Bank of India (SBI), has four suitors for its cash-starved businesses: ArcelorMittal, Welspun, Sterlite/Vedanta group controlled by Anil Agarwal, and Navin Jindal, who controls the highly-successful Jindal Steel & Power. Interestingly, the Tatas, who run one of the largest steel businesses in the world, are not interested in the company.
However, while these four bidders have expressed interest in the deal, Welspun, which is the smallest of the four, wants to take the company over with the entire debt of Rs7,000 crores. The others want to pay off the institutional debt substantially.
While there can be more potential bidders for Ispat, the fact is that no deal is possible unless the financial institutions stop mothering the company and its promoters. Far from stepping in to discipline the promoters, the bankers have benignly watched Vinod and Pramod Mittal’s mission to ape their estranged brother Lakshmi Mittal, who has built the largest steel group, ArcelorMittal, by stitching together favoured deals with governments around the world. In trying to emulate Lakshmi Mittal, the two brothers floated Global Steel Holdings, based in the tax haven the Isle of Man, though it is not clear how they funded their foreign adventure.
While Ispat Industries is struggling to even pay its salaries, power charges and interest, Global Steel Holdings is reported to be partnering with steel companies in various trouble-spots around the world. It apparently has steel operations in Bulgaria (and even owns the top football team there!), Nigeria, and runs a 20-year management contract to operate Zimbabwe Iron & Steel and coal blocks in Mozambique.
The Mittal brothers have also been reported to be fishing in another controversial spot, Libya. Most interestingly, The Economic Times reported in April this year that Global Steel was trying to get a stake in North Korea’s Musan Iron Ore mines, estimated to hold reserves of more than seven billion tonnes. It looked strange that the Chinese, who dominate the global steel industry and have a stranglehold in North Korea, would let the discredited Mittal brothers enter into a deal with Musan.
As Moneylife wrote yesterday, over the past five years, Ispat Industries has defied every threat by its lenders to force a change of management and it has continued to raise fresh funds. Ispat’s promoter-managers Pramod and Vinod Mittal have never failed to extract fresh funds, even when the company was on the verge of closure. Moneylife reported yesterday how Ispat Industires was sanctioned Rs130 crores by SBI just before its plants at Nagpur and Dolvi in Maharashtra shut down for a month. (Read: http://www.moneylife.in/article/4/11832.html)
The debt of Ispat Industries has been restructured twice already (2003 and 2009) against all prudent lending norms. Yet, neither the Reserve Bank of India (RBI) nor the government has even questioned the lenders about their continued largesse to the company and its continuing foreign adventures. If Ispat has to be salvaged and the banks’ loans secured, a new owner will have to step in. What is not clear is why the institutions are postponing the inevitable. — Debashis Basu