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Bulgaria mill brings Mittals closer

Calcutta, April 2: Fourteen years after they parted ways, the Mittal brothers may be ready to do a deal again.

Pramod and Vinod Kumar Mittal are in talks with elder brother Lakshmi Niwas Mittal — the world’s richest Indian — to sell their troubled Bulgarian steel mill.

If they can pull off the deal, it will be the first publicly known business transaction between the brothers since L.N. Mittal left India in 1994 to carve out his own business empire.

The plant in question is Kremikovtzi AD, the largest steel producer in Bulgaria.

P.K. and V.K. Mittal’s Global Steel Holding Ltd bought this plant in August 2005 from its erstwhile owner Finmetals Holdings Ltd.

State-owned Kremikovtzi was sold to Finmetals Holdings in 1999.

The labour unions at this loss-making plant, which has a capacity of 2.2 million tonnes, have been locked in a battle with Global Steel and have accused the younger Mittals of reneging on their investment commitments.

There have been protests in the streets of Bulgaria with workers demanding the removal of the present management.

A Global Steel official refused to name the preferred buyer but admitted that talks were being held with some groups. It has mandated Merrill Lynch to find a strategic partner.

“We are in discussions with a number of strategic companies for long-term supply of raw material and investment to improve productivity, efficiency, profitability and long-term stability. Global Steel has received strong interest from many groups but we have not concluded a deal with anyone,” a source said.

It is learnt that L.N. Mittal has made a concrete proposal to the Bulgarian government which has a 25 per cent stake in the company.

The $1-billion proposal includes paying off 350 million euros to bondholders, pumping in funds to upgrade environment standards, assume liabilities and improve the overall viability of the plant.

Merrill Lynch was the issuer of the bonds. The new owner will have to secure approvals from P.K. Mittal, the Bulgarian government and the euro bondholders.

L.N. Mittal does not have any operations in Bulgaria. However, ArcelorMittal, the largest steel company in the world in which he has a controlling stake, is the strongest player in the east European countries.

The mill requires about $150 million to upgrade environmental standards. The funds were supposed to come in by 2011. But the Bulgarian authorities want the investment to be made now.

Kremikovtzi’s operations have been hamstrung by the fact that it doesn’t have captive raw material.

The new owner is expected to provide that. ArcelorMittal has an iron ore mine in nearby Ukraine and can feed the plant.

If L.N. Mittal chooses to bail out his brothers, it won’t dent his wallet.

The valuation of the Bulgarian plant is estimated at $1 billion. It employs 8,000 people directly and provides indirect jobs to another 100,000.

The Mittals are insisting that they are only scouting for a strategic investor, but the buzz is that they will be ready to sell the plant if they get the right offer. It will be even more interesting to see whether L.N. Mittal will come in as a strategic partner and work again with his brothers.

Global Steel has so far invested $300 million in the plant. It is not known how Global Steel will be compensated under the deal that L.N. Mittal has made to the Bulgarian government.

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