Pramod Mittal of the Ispat group is obviously in high spirits these days. Last week, he acquired CSKA Sofia, a premier division Bulgarian football club in a deal estimated at 14 million Euros. Obviously, the acquisition made a splash in the international media, which made it a point to mention that Pramod Mittal, who already operates a steel mill in Bulgaria was the younger sibling of Lakshmi Mittal, one of the world’s richest men. The Mittal name and the fact that he is the first Indian to own a top flight European club has immediately gave the profile of a successful international tycoon. This was accompanied by some highly forward-looking announcements in India as well. Ispat Industries, the group’s flagship company announced a Rs 8,000 crore “acquisition and expansion” drive, starting with a two million tonne hike in the capacity of its integrated steel plant at Dolvi in Maharashtra at a cost of Rs 2,000 crore. The state government has already signed a memorandum of understanding with the company offering to facilitate raw material supply and infrastructure clearances through a single window operation. It has obviously forgotten the not too distant past when the cash strapped Maharashtra State Electricity Board (MSEB) had to force Ispat Industries to pay up its electricity bills by snapping its power connection.
Recent media reports about the company make no mention of how the Rs 8,000 crore expansion and acquisition drive will be funded. Naturally, they also do not mention that even after Corporate Debt Restructuring (CDR), the Ispat group owes institutions a whopping Rs 8,000 crore in principal alone for which the repayment itself is to begin only after June 2007.
In fact, the group continues to run a massive loss even while other, once-beleaguered, steel magnates had got their act together and have paid up interest as well as principal on their restructured debt. On the other hand, until fairly recently, Ispat Industries was falling back on interest payments and seemed headed for a default on its CDR commitments; this had reportedly prompted ICICI Bank to ask the Sajjan Jindal group to acquire Ispat Steel.
To put its corporate performance in perspective, the accumulated loss of Ipsat Industries was Rs 1,200 crores for the period ended March 2006. In the April-September quarter it posted a loss of Rs 110 crore—and this was an improvement over previous quarters. Yet, its loss for the current financial year is likely to match the losses that it declared last year. Doesn’t this given an entirely different picture of its grand expansion plans?
Media reports about Mittal’s European football club acquisition and ambitious expansion plans doubled the trading volume of its shares and led to a 7.33% spike in its share price taking it to a princely Rs 12.
Mittal’s bullishness seems to emanate from the kindness of his lending institutions. Although they are yet to recover their principal lending, ICICI Bank and State Bank of India have reportedly lent the group over Rs 100 crore and Rs 200 crore respectively for a power project. However, IDBI Bank, its lead institution has refused to join the lending party.
What is most intriguing about the Indian faction of the Mittal family is their continued clout, despite obvious corporate mismanagement (why are their companies the only ones not to profit from the global surge in steel prices over the last few years), large losses and investigation by various arms of the government. An investigation by the Serious Frauds Office was aborted after a stay order from the court and an excise evasion inquiry by the Commissioner at Raigadh has suddenly gone cold after a change in senior officials. Institutional nominees have occasionally raised queries about some of its large exports to Dubai, but did not follow it up. The Enforcement Directorate, which showed great alacrity when it came to scrutinising Aishwarya Rai’s phone records, is its usual lethargic self when it comes to the boring job of investigating encashment of funds by the group’s top brass in tax havens. As for the lending institutions, a board meeting at Tirupati appears to have had the effect of making them more benevolent to the group that has trouble managing its Indian operations, although it runs plants in Bulgaria, Nigeria, Libya and the Philippines.