Updated on 8 August 2019 at 3.30pm to include response from Charles Russell Speechlys LLP
When Pramod Mittal was arrested in Bosnia on 24th July, it hardly caused a ripple in India, except to note that he is the younger brother of global steel magnate Lakshmi N Mittal. Although he was expected to remain in jail for a month, Mr Mittal and two colleagues were released on Tuesday, 30th July after paying a hefty €12.5 million. The release order also mandates an ‘insurance’ of €11 million deposited into a special account until the end of the proceedings.
He was held for suspicious transfer of nearly €11 million from Lukavac (Bosnia)-based GIKIL (Global Ispat Koksna Industrija d.o.o.) which is a partnership between Global Steel Holdings (GSHL) and Coke and Chemical Conglomerate (KHK) owned by the Government of Bosnia-Herzegovina. GIKIL was set up in 2003 and has over 1,000 employees.
In May this year, Pramod Mittal got out of another sticky situation in India when his older brother Lakshmi N Mittal bailed him out by paying over $200 million owed to the State Trading Corporation (STC). This helped quash civil and criminal proceedings that had slowly wound their way to the Supreme Court of India.
At a time when the bad loans of Indian public sector banks (PSBs) have soared to Rs10 lakh crore, it is worth remembering that Pramod Mittal’s Indian steel businesses have done their bit to bleed Indian lenders over the decades, until they were literally forced to sell their flagship company, Ispat Industries Ltd (IIL) to Jindal Steel in 2010. In fact, STC is probably the only case that was pursued assiduously all the way to the apex court.
Pramod Mittal, say lenders who knew him, had it coming. He loved to boast about his political connections and used them to the hilt. In my first meeting with him, decades ago, he freely dropped names of leading politicians across the world, who he claimed were close friends.
He told me how a taciturn Indian prime minister used to visit him at home, although he kept a distance publicly. Over the years, he got leaders from France, Canada and the UK to smoothen the many wrinkles of his money-guzzling coal and power projects. The Indian media too has openly reported how powerful politicians, cutting across party lines, lobbied for the government to go soft on the money that he owed STC and defended him in court.
A story that I remember well dates back to March 1999. IIL’s flagship Dolvi plant owed over Rs80 crore to the Maharashtra State Electricity Board (MSEB) which finally cut off power supply. Within hours, two powerful Maharashtra politicians (both now deceased) burnt the phone lines between Mumbai and Delhi to have the supply restored.
This drama between the Maharashtra chief minister and his brother-in-law in Delhi was repeated dozens of times over the years, until Ispat’s outstanding zoomed to Rs247 crore by September 2001. Finally, one strong MSEB chairman put his foot down and forced them into signing a deal to make staggered payments based on an escrow account.
If this was the attitude towards paying utility bills, imagine his attitude to bank repayments! IIL’s debts soared past Rs8,500 crore in 2002 after repeated restructuring and generous write-offs. In 1998, I had published details from confidential reports of lending institutions, which documented the diversion of hundreds of crores of rupees to purchase real estate and other investments. There was no serious effort to recover the money.
Thanks to this style of governance, Ispat’s Indian steel operations were rarely profitable, even when steel prices were very high. For instance, all steel companies reported a turnaround in 2007 (after multiple rounds of restructuring); but Ispat Industries struggled with its repayments.
At the same time, Mr Mittal had no qualms about flaunting his lavish lifestyle. In 2010, I wrote: “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, chauffeurs and other help.”
At that time, the entire shareholding of the Mittals in IIL was pledged with the lenders; Pramod and his brother Vinod Mittal had also given personal guarantees and pledged a Peddar Road property, valued at around Rs75 crore which was pretty high those days.
Pramod Mittal had already shifted base to his $17-million home in London and established a global empire well before IIL was sold. According to a European banker, who has helped several steel magnates raise funds abroad, he used “Ispat Industries like a piggy bank.”
The overseas business began with STC procuring raw material on behalf of Global Steel for its Philippines operations between 2005 and 2010. STC funded this through borrowings; but when Mr Mittal’s firm defaulted, it was left with the outstanding and accrued interest.
After The Philippines, Mr Mittal quickly started operations in Nigeria, Bosnia and, finally, Bulgaria by buying political influence in each country. In July 2013, IndustriALL Global Union, representing 50 million workers in 140 countries, said this in an article that is still on its website: “The Ispat Group, owned by Pramod Mittal, has a record of social destruction in several countries. Its actions in Nigeria, Libya and Bulgaria over the last five years illustrate a total institutional disregard for the company’s employees and their communities, as well as for the law and the national economies in which they operate. The record includes lengthy pay arrears of up to seven months, leading to numerous worker suicides. The company is also known for cannibalising equipment and exporting it.”
It further said that the immediate provocation for “increasing the squeeze on workers at GIKIL is the €92 million company debt. This artificial debt, however, was created through highly dubious business dealings by GIKIL, purchasing coal at an inflated price for a prolonged period from another subsidiary of the same holding company, Stenkom, owned by Global Infrastructure Holdings.”
Well, six years later, Bosnia has certainly managed to get Pramod Mittal to cough up a hefty sum in exchange for his release. One of the allegations against him is his link with ‘organised crime’; we need to see if that sticks during the trial.
The European banker points out that this is not the first time that Mr Mittal has been embroiled in controversy. His Bulgarian adventure included the purchase of the huge, Kremikovtzi steel mill near Sofia in 2005. He went on to raise €325 million through a bond issue for an expansion programme; but the company was already making losses and soon defaulted on the bond payment as well. For a while, the socialist government kept it afloat; but it soon floundered.
In 2006, he also purchased CSKA, a top Bulgarian football club from Vassil Bozhkov, one of the richest men in Bulgaria, also known as a ‘gambling boss’. He hired a top Bulgarian politician as president of the club. Two years later, Mr Mittal had sold the club at a loss after it had accumulated large debts and was already on the path of a long decline. All this caused a lot of anger and local papers say that he purchased the club only to buy influence in a football-crazy nation. My banker source insists that there is trouble waiting for Pramod Mittal if he decides to travel to Bulgaria.
His Nigerian operations were also controversial. In 2008, the Nigerian government cancelled its contract to two steel companies amidst allegations of ‘asset stripping’. Soon after, employees, mostly Indians with families, were left high and dry without salaries.
At a time when Nirav Modi is doing jail time, a visionary VG Siddhartha was driven to suicide after finding himself in a massive debt trap, and the flamboyant Vijay Mallya has lost his swagger as he faces deportation, it is important to remind ourselves how much some industrialists have got away with because of corruption in public sector companies and nexus with political leaders over the decades.
On Friday evening one Alok Gupta, ostensibly of Imaginem Media, has forwarded us a "press release" on behalf of GSHL, which claims that the arrest was in connection with a hostile takeover. The essence of the two page release is that the arrest of Mr Mittal, Rajib Das, member of the supervisory board and Paramesh Bhattacharyya, managing director/general director of GIKIL, were "the objective of hostile takeover by dislodging the present management and causing loss of value for its stakeholders and their investments."
Updated on 8 August 2019 at 3.30pm:
In an email communication, Charles Russell Speechlys LLP, which claims to represent Mark Wilson, Adrian Allan and Craig Mitchell in their capacity as the joint liquidators of GSHL, says, "... the Liquidators of Global Steel Holdings Ltd, confirm that the press statement referred to above was not authorised by them, and was not made by or on behalf of Global Steel Holdings Ltd."