The saga of Pramod and Vinod Mittal’s companies—Ispat Industries Ltd (IIL) and Global Steel—will probably be investigated only if employees and suppliers file cases. That the Mittals are defaulting on their repayment obligations has not been news for at least 15 years now. I first wrote about their defaults in the 1990s. In December, Moneylife learnt that IIL’s plants have been closed for over a month because of lack of funds and the stock exchanges have not been informed. The Mittals desperately need money from somewhere to get the plants running; and lending institutions, who have an outstanding of Rs7,400 crore after two rounds of corporate debt restructuring (CDR), are worried about their stock price and credit rating if loans to the Mittals have to be declared as non-performing assets (NPAs). So they have, once again, resorted to the charade that began in 2002—of threatening a change in management. With the Reserve Bank of India (RBI) choosing to be a mute spectator, lenders will be forced to act only if ordered by a court of law.
A detailed investigation will reveal how banks turned a blind eye to the fact that hundreds of crores pumped into IIL have probably funded the Mittals’ luxurious lifestyle overseas and extravagances such as acquisitions in Bulgaria, including a football club (both have failed or been sold). Some bank chairmen have even been guests at the Mittals’ palatial home in Mayfair (London) staffed by a valet, chef, chauffer and other help. Documents available with Moneylife show that almost the entire shareholding of the Mittals in IIL is pledged with the lenders; the brothers have also given personal guarantees and pledged a Pedder Road (Mumbai) company property. In effect, there is nothing to stop the lenders protecting their loans by forcing a change in management while IIL is a running concern and can attract several buyers.
Interestingly, the Mittal brothers also have large overseas defaults and bankruptcies. They have defaulted on a euro 325-million bond issue by Global Steel dated May 2006 for Kremikovtzi (Bulgaria) causing losses to several prominent funds. Among the claimants on that deal was India’s State Trading Corporation of India ($160 million), whose dealing with the Mittals is another scandal that was being investigated by the Central Bureau of Investigation. — Sucheta Dalal