Born into a steelmaking Rajasthani Marwari family, the rise of Pramod Mittal began a few years after the acrimonious parting of ways of his older brother Laxmi Niwas (LN) in 1994.
Laxmi had set up the international operation Ispat (Sanskrit for steel) International and had shown his mettle by buying a small Indonesian steel mill in distress and turning it profitable. This business model was replicated in a rapid string of acquisitions in Trinidad, Mexico, Algeria, and Kazakhstan.
After the split, LN took control of the international operation he had built up while Pramod, with his father’s blessing, decided to emulate his brother’s initial success by moving to London and buying a mansion in Mayfair – through an Isle of Man trust. By this time, the Indian operation had expanded to some two million tonnes, a significant base as a 'piggy bank' to provide funding for his nascent Global Steel Holdings – an Isle of Man company with an office in Dubai but operated out of Mayfair.
I first met Pramod in the fall of 2004. We had just finished the restructuring of Essar Steel’s foreign debts and the late Ralph Oppenheimer, the then chairman of the UK-based Stemcor, suggested I meet him. Pramod was interested in buying a Bulgaria-based steel mill in deep distress and with an office in Sofia. We knew Bulgaria well. Ralph had had a close relationship with Essar and the Ruias and I had met him in 2000, soon after Essar had defaulted on the first international bond issue by an Indian company.
Seeking other Indian steel companies to service, Ralph had agreed to finance Pramod Mittal’s coke venture in Bosnia, knowing that Pramod had already corralled the Indian finance ministry-owned State Trading Corporation (STC) to provide working capital. To his credit, Ralph had insisted that Pramod provide personal guarantees for loans from Stemcor pari passu to STC. Pramod agreed – much to his regret – which sowed the seeds of his eventual fall from grace and led to his involuntary bankruptcy ordered by a UK Court.
The contrast between the two brothers is best illustrated by some anecdotes. In fact, David Bonderman, founder of the Texas Pacific group, to whom I had introduced Pramod in June 2005, once wondered if the two were really brothers.
Having acquired the International Steel Group – a collection of bankrupt American steel mills acquired in 2004 by the current commerce secretary Wilbur Ross – LN plotted a course to go after the big one – Arcelor, a Luxembourg-registered company. He faced enormous opposition from the European governments, particularly France, and the management itself, who opted for a Russian tycoon to thwart him. The Russian tycoon had retained Goldman Sachs.
Through Wilbur Ross, LN knew that Goldman Sachs had near complete control of the Bush administration and, as a Wall Street powerhouse and advisor to several governments like the UK and Italy, was a serious threat to his ambition. But he also knew that Goldman Sachs was a mercenary. He chose to follow the obvious course - simply calling up Lloyd Blankfein and gaining their allegiance. Money talks and the shift from the Russian man to LN was quick and Arcelor's fate was sealed.
In May of 2005, a year before his brother’s acquisition of Arcelor, Pramod invited me on a trip to Wheeling Pennsylvania. His Pakistan based agent Javed Pasha - once an aide to Benazir Bhutto – had arranged for a meeting with Wheeling Pittsburgh steel executives as a prelude to a bid. He entered the board room with a swagger and declared that he was Pramod Mittal, an industrialist but not an investor. He owned steel mills across the world and was interested in buying Wheeling. They were impressed confusing him with Mittal Steel.
I quickly arranged a meeting with a Bear Stearns senior managing director in New York, who agreed to finance with up to $400 million bond issue. On one condition. Pramod would have to contribute about $50 million in equity. Pramod quietly disappeared and refocused on acquiring Kremikovtzi, the Bulgarian Steel mill for $100 million. But he needed money to finance it. His new general manager Alok Gupta brought in Merrill Lynch; but Merrill also wanted an equity contribution. Horns of a dilemma!
I did not realise it at the time, but Pramod had a sharply different business model and strategy. Never dig into your own pockets but see what you can suck out of a business. The demand for an equity contribution was anathema to him.
Pramod solved the dilemma by agreeing to drop a lawsuit against the government of Liberia – where LN had iron ore mine concessions – in return for a bridge loan of $30 million. The bridge loan was repaid from the proceeds of a Merrill placed bond issue for 325 million euro in May 2006.
I must admit my ignorance at the time. There was one glaring hole that passed over my head. While the Indian banks were big creditors of Ispat in India – almost the equivalent of $1.5 billion – none stepped forward to fund GSHL (Global Steel Holdings Ltd). The sole working capital creditors were the STC and Stemcor. It was a red flag I should have noticed. But loans for working capital are short-term in nature and the loans from STC were 'evergreen'. A conundrum that was revealed to the world when STC filed a complaint in the Delhi High Court in March 2017 alleging fraud and corruption, charging Mittal and his whole family, and threatening jail time.
Meanwhile LN was locked in a battle with the Ruias for control of Essar Steel. It would not look good to have your brother and his family serving time in jail in India when you are plotting to become the biggest steel maker in India. LN/Arcelor paid $200 million equivalent to STC and succeeded in persuading the Supreme Court of India to quash the charges in March 2019.
Meanwhile in the UK, a Stemcor spin-off called Moorgate continued to pressure Pramod in a UK Court to settle the old Bosnia debts. In a desperate attempt to ward them off with some sort of payment, Pramod ventures into Bosnia in July 2019 and is seized and thrown into jail on charges eerily similar to the ones levelled against him by STC in March 2017. (Read: Pramod Mittal Arrested: Got Away in India, Caught in Bosnia)
Jail time – magic words - and big brother bails him out yet again.
Moorgate pushes ahead and persuades a UK court to declare Pramod bankrupt in the hope that big brother will step in again. No such luck. No debtor’s prison in the UK and Pramod is declared bankrupt. Big brother stands aside, probably wiping his brow in relief that his pain and anxiety from his younger brother’s escapades in the past two decades is finally at an end.
In one final act of defiance, Pramod files in court a declaration of his assets and his liabilities – assets miniscule but debts humongous, including to his own wife, siblings, and father, but none to big brother. He pleads poverty claiming to have zero income and living expenses of just 3,000 pounds a month. He offers full and final settlement to all creditors at 0.18 pence to the pound.
Moorgate was stunned and John Soden vowed to challenge.
I have seen this tactic used before in Bulgaria at the bankruptcy of Kremikovtzi. Pramod listed entities controlled by him owed some 700 million, more than twice the 325 million bonds in default. In that case the bankruptcy trustee dismissed all of those claims. It remains to be seen if the UK Court sees through this scheme engineered to annul the bankruptcy and dismisses them, allowing only the claims filed in court to remain. . .
(The author understands global financial markets well, has advised many Indian companies and has a close understanding of top Indian business families. He lives in Greenwich CT, US)