Mountain of debt forces Mittal exit2 min read . Updated: 21 Dec 2010, 09:58 PM IST
Mountain of debt forces Mittal exit
Mountain of debt forces Mittal exit
Kolkata: Nature conspired to preventPramod Mittal, Ispat Industries Ltd’s chairman, from reaching Mumbai, where his younger brother Vinod Mittal, the firm’s vice-chairman and managing director, concluded on Monday a deal to sell a substantial stake in the beleaguered steelmaker to rival JSW Steel Ltd.
Flights were disrupted by heavy snowfall and he was stuck in Europe, Ispat’s director U. Mahesh Rao, told shareholders in Kolkata, 12 hours after the deal was concluded.
Not that he was desperate to keep the company from being taken over, said another director of the firm, who did not want to be named. “Pramod moved to London in 1998 to pursue global opportunities, and for the last 5-7 years, it was his brother who’s been running the operations here," he added.
Pramod Mittal is to step down from the board of Ispat—which is to be renamed JSW Ispat Steel Ltd—even as his brother will continue to be the executive vice-chairman for at least another 18 months.
Overshadowed by his illustrious elder brother Lakshmi Mittal, who, following a family split in 1994, went on to build the world’s biggest steel company ArcelorMittal, Pramod Mittal has always been “extremely ambitious", according to the chief executive of a group company, who, too, did not want to be named.
The Mittal brothers diverted funds to various other ventures and Ispat’s subsidiaries, none of which “went according to plan".
“Pramod Mittal was always hungry for growth, especially outside India," the Mittal group executive said. “But unfortunately, many of his ventures didn’t succeed—I would say he was, at times, extremely unlucky."
Strapped for cash, Ispat didn’t have money to even buy raw materials, let alone service its Rs7,156 crore debt, said a company executive, who did not want to be named.
In the end, Ispat’s “lenders put a gun to their temple", said the Ispat director cited above. “They would have very likely seized the company if they didn’t bring in a new promoter."
“The key challenge was to make the deal acceptable to the lenders," said Suhail Nathani, partner, Economic Laws Practice—a law firm that advised Ispat on the deal. “JSW is to deal with the lenders from now on."
Having mortgaged most of their 41% stake in Ispat, the Mittal family was on the verge of losing everything, but the deal with JSW ensures that they would continue to own a 26% stake in the firm they founded in 1984.
“Following this deal, we will request the lenders to release the shares pledged by the promoters," said Anil Sureka, Ispat’s director, finance.
It isn’t immediately clear what Pramod Mittal will do next. His overseas ventures under Global Steel Holdings Ltd, a firm founded in 2005 and registered in the Isle of Man—a tax haven in the British islands—have witnessed setbacks, most notably in Bulgaria and Nigeria.
In April 2008, Nigeria revoked deals that gave Global Steel control of a steel plant and an iron ore miner, alleging breach of contractual commitments and asset stripping. The fate of its plant in Bulgaria, too, was similar.
Pramod Mittal continues to control two key companies in India—Balasore Alloys Ltd and Gontermann Peipers India Ltd—and has significant business interests straddling the Philippines, Libya, Bosnia, Azerbaijan and Uzbekistan.
“We are hopeful that he is going to revive the iron ore mining project in Nigeria soon," said the Mittal group executive quoted earlier.