In 2005, Global Steel Holdings Ltd. [GSHL] took control of Ispat Industries Ltd. [IIL] by acquiring majority stakes in Ispat Steel Holdings [ISH] and other foreign and Indian investment companies but on 23 November 2007, GSHL lost direct control of IIL.
On a net profit of Rs 48.89 crore [$12.12M] in March 2008; Rs 28.73 crore [$6.71M] in June 2008; IIL posted a net loss of Rs 26.74 crore [$5.86M] for its second quarter, and whooping net loss at Rs 651.7 crore [$131.21M] for the company’s third quarter ending 31 December (MoneyControl, 2008; Chatterjee, The Economic Times, 2009). One crore is equivalent to 10 million (one followed by seven zeroes). LiveMint, however, reported that IIL incurred a net loss of Rs210.54 crore [42.39] for the quarter ended 31 December 2008 (Kalesh, 2009).
Audited financial results for the year ended 31 March shows Rs 34.80 crore [$8.63M] net profit for 2008 compared to a net loss of Rs 9.53 crore [$2.17M] in 2007 (IIL, 2008). According to Executive Director (Finance), Anil Sureka, “While steel plant operations were stable for most part of 2007, … as well as demand for steel, both in domestic and international markets, remained stable … and steel prices were firm, IIL’s financial results were affected due to higher input costs and lower availability of natural gas.” It was also the year when IIL debited Rs 500.31 crore [$112.13M] net loss of “erstwhile Ispat Metallics India Ltd.” In 2006, it reported a net loss of Rs 812.67 crore [$182.83M] for the year ended 31 March (IIL, 2007). In 2005, IIL had posted net profit of Rs 696.06 crore [$159.24M].
Probably fate or what not, but what a seesaw of net profit/loss between Rs 696.06 [$159.24M] net profit in 2005 to a net loss of Rs 812.67 crore [$182.83M] in 2006! Even the following year, in 2007, IIL also posted a net loss of Rs 9.53 crore [$2.17M], however small, but still a loss.
Between 2005 and 2006, IIL commissioned an additional state-of-the-art Electric Arc Furnace and related facilities, capacity of Hot Rolled Coil plant was enhanced from 2.4 Million Tons to 3.0 Million Tons. Sinter plan of the annual capacity of 2.0 Million Tons was commissioned in December 2005 and operations have since stabilized. Oxygen Plant of the capacity of 1260 Tons per day was also commissioned in December 2005 and operations have stabilized since April 2006. Consequent to commissioning of the aforesaid projects, productivity and efficiency stand enhanced and costs of inputs have declined (IIL, 2006).
IIL’s fiscal year begins in April and ends in March. Pramod Mittal relinquished the office of Managing Director of ILL effective 30 June 2005, but continued to be the Chairman of the company (IIL, 2006). Probably coincidence or what not, but between April 2004 and November 2007, GSHL was in direct control of IIL! It was also the time when GSHL was acquiring overseas companies, notable of which are: in Nigeria (Ajaokuta Steel in August 2004, Delta Steel and NIOMCO in February 2005), Bulgaria (Kremikovtzi in April 2005), Bosnia (Llamkos in August 2005), Montenegro (Ivangrad in June 2007); and even tried Liberia and Zimbabwe. It acquired Philippines’ National Steel Corporation in February 2004.
Reuters’ (2008) analysts reported about 14 officers and directors for IIL, while BusinessWeek (2009) and MoneyControl (2008) also named at least 14 board members, up from 12 directors in 2005 (IIL, 2006). IIL’s Annual Report 2007-08 (2008) specified its Board of Directors, as follow: Pramod Mittal, Chairman; Vinod K. Mittal, Vice Chairman & Managing Director; five (5) non-executive directors: U Mahesh Rao, Dr. A Besant C Raj, Manu Chadha, Satya Pal Talwar, and Dr. Basudeb Sen; four (4) non-executive directors as bank nominees: B P Singh (IDBI), K M Jaya Rao (ICICI), M Sankaranarayanan (UTI), Sanjoy Chowdhury (IFCI); and three (3) executive directors: Vinod Garg (Commercial), Anil Sureka (Finance), B K Singh (Steel Plant). The Ispat patriarch, Mohan Lal Mittal, is acknowledged as Chairman Emeritus. T. P. Subramanian is also acknowledged as President and Company Secretary. BusinessWeek (2009) noted the total annual compensation for the following directors: Vinod Garg, $11.9M; Vinod Mittal, $7.2M; and Anil Sureka, 11.9M, while Reuters shows lesser values the same as those published in IIL’s Annual Report 2007-08 [p. 51]. IIL’s Annual Report 2007-08 (pp. 9, 12-19, 2008) revealed that V.K. Mittal is entitled to Rs2.4 crore ($0.6M) annual compensation, 3% of net profit, plus perquisites & allowances to a maximum of 125% of his annual salary; the three (3) executive directors were entitled to Rs 0.9 crore ($0.2M) annual compensation, plus commission of Rs12 lakhs per annum ($29,760) and perquisites & allowances to a maximum of 125% of their annual salaries. One lakh is equivalent to a hundred thousand.
On February 2009, IIL asked creditors to restructure the interest it owes on Rs586 crore [about $112M] of debt into another loan, as the steel industry struggles with declining demand and prices due to the current global downturn. In a letter to IFCI Ltd, its main lender, IIL asked the consortium of creditors— Industrial Development Bank of India [IDBI], Industrial Finance Corporation of India [IFCI], ICICI Bank and Unit Trust India [UTI] (Chatterjee, The Economic Times, 2009)—to consider a request to pay the interest in 60 months beginning April 2013 and also sought a cut in the interest rate from 14%. A month before this, IIL secured lenders’ approval to defer the repayment schedule for the Rs586 crore [$112M] of term loans that had been due to mature between October 2008 and March 2010 (Kalesh, LiveMint, 2009).
The promoters of Ispat Industries, Pramod and Vinod Mittal, have pledged their entire shareholding in the company with lenders, in return for a debt restructuring package that moderates and delays repayment schedules, as the beleaguered IIL makes yet another attempt to rid itself of a mountain of debt and emerge healthy. The last tranche of 9.1% was pledged on 15 May 2009 with Industrial Development Bank of India [IDBI] Trusteeship Services. This is Ispat’s second attempt, the first in 2000 due to a steep price and demand slump in the steel industry, to secure a debt restructuring package and highlights IIL’s growing problems with debt, lack of access to key raw materials and a cheap and ready source of power (Chatterjee, The Economic Times, 2009).
“The problems are no different this time,” wrote Chatterjee of The Economic Times (2009). Ispat has debt of about Rs 8,000 crore [$1.6B], where its market capitalization is about Rs 3,022 crore [$608M]. Anil Sureka, IIL’s Executive Director (Finance) said the pledge of promoters’ stake was in line with the agreement with the financial institutions when the company asked for a second restructuring plan. IIL was supposed to restart repayment of loans to lenders between October 2008 and March 2010, but will only start paying from April 2010. IIL already mortgaged its fixed assets with its lenders when the first restructuring scheme was sanctioned in 2001.
Total debt as a percentage of total assets graphically shows that by the end of March 2006, IIL was financed with 80.12% debt, but the future looks somewhat brighter with decreasing rates to the present, yet still above the lowest in five years (2004-2008), posted last March 2005.
Notes:
All foreign exchange rates for US Dollar to Indian Rupee, based on the online database published by: FXTrade Forex Trading. Exchange rate used for conversion, Interbank rates, were the average for the whole month when such statements were published.
BusinessWeek (2009). Ispat Industries Ltd. (ISPT:Bombay Stock Exchange) Board of Directors, BusinessWeek. New York: The McGraw-Hill, Accessed 02 February 2009. back to text: 1 | 2.
Chatterjee, Dev (2009). Ispat promoters pledge entire stake with lenders. New Delhi: The Economic Times, 01 June 2009. back to text: 1 | 2 | 3 | 4.
Ispat Industries Limited (2006). Annual Report 2005-06. Kolkata: Ispat Industries Limited, August 2006. p. 3, 12. back to text
Ispat Industries Limited (2007). Directors Report – Ispat Industries, Year End : Mar ‘07. Kolkata: Ispat Industries Limited, 06 June 2007. back to text
Ispat Industries Limited (2008). Annual Report 2007-08. Kolkata: Ispat Industries Limited, June 2008. p. 9, 12-19, 51, 60. back to text
Kalesh, Baiju (2009). Ispat Industries moves lenders for debt recast. New Delhi: LiveMint, The Wall Street Journal, 04 February 2009. back to text
MoneyControl (2008). MoneyControl: Company Page – Ispat Industries. On-line: Money Control, 2008. Accessed 02 February 2009. back to text
MoneyControl (2008). Balance Sheet – Ispat Industries. On-line: Money Control, 2008. Accessed 02 February 2009. back to text
Reuters (2008). Basic Compensation: Officers and Directors For Ispat Industries Ltd. On-line: Thomson Reuters, 30 Mar 2008, accessed 19 Jun 2009. back to text
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Understanding GSHL: Red Still Marks The Ispat
Tags: Steel Demand, Global Steel Holdings Ltd., GSHL, Restructuring, Board of Directors, Managing Director, Domestic Market, Allowance, Ispat Industries Ltd, IIL, Steel Price, Creditor, Electric Arc Furnace, Natural Gas, Shareholding, Oxygen Plant, Commissioning, Net Profit, Crore, Net Loss, International Market, Input Cost, Ispat Metallics India Ltd., Global Downturn, Industrial Development Bank of India, IDBI, IFCI, ICICI Bank, UTI, Interest Rate, Repayment Schedule, Lakh, Perquisite, Sinter Plant, Unit Trust India
In 2005, Global Steel Holdings Ltd. [GSHL] took control of Ispat Industries Ltd. [IIL] by acquiring majority stakes in Ispat Steel Holdings [ISH] and other foreign and Indian investment companies but on 23 November 2007, GSHL lost direct control of IIL.
On a net profit of Rs 48.89 crore [$12.12M] in March 2008; Rs 28.73 crore [$6.71M] in June 2008; IIL posted a net loss of Rs 26.74 crore [$5.86M] for its second quarter, and whooping net loss at Rs 651.7 crore [$131.21M] for the company’s third quarter ending 31 December (MoneyControl, 2008; Chatterjee, The Economic Times, 2009). One crore is equivalent to 10 million (one followed by seven zeroes). LiveMint, however, reported that IIL incurred a net loss of Rs210.54 crore [42.39] for the quarter ended 31 December 2008 (Kalesh, 2009).
Probably fate or what not, but what a seesaw of net profit/loss between Rs 696.06 [$159.24M] net profit in 2005 to a net loss of Rs 812.67 crore [$182.83M] in 2006! Even the following year, in 2007, IIL also posted a net loss of Rs 9.53 crore [$2.17M], however small, but still a loss.
Between 2005 and 2006, IIL commissioned an additional state-of-the-art Electric Arc Furnace and related facilities, capacity of Hot Rolled Coil plant was enhanced from 2.4 Million Tons to 3.0 Million Tons. Sinter plan of the annual capacity of 2.0 Million Tons was commissioned in December 2005 and operations have since stabilized. Oxygen Plant of the capacity of 1260 Tons per day was also commissioned in December 2005 and operations have stabilized since April 2006. Consequent to commissioning of the aforesaid projects, productivity and efficiency stand enhanced and costs of inputs have declined (IIL, 2006).
IIL’s fiscal year begins in April and ends in March. Pramod Mittal relinquished the office of Managing Director of ILL effective 30 June 2005, but continued to be the Chairman of the company (IIL, 2006). Probably coincidence or what not, but between April 2004 and November 2007, GSHL was in direct control of IIL! It was also the time when GSHL was acquiring overseas companies, notable of which are: in Nigeria (Ajaokuta Steel in August 2004, Delta Steel and NIOMCO in February 2005), Bulgaria (Kremikovtzi in April 2005), Bosnia (Llamkos in August 2005), Montenegro (Ivangrad in June 2007); and even tried Liberia and Zimbabwe. It acquired Philippines’ National Steel Corporation in February 2004.
Reuters’ (2008) analysts reported about 14 officers and directors for IIL, while BusinessWeek (2009) and MoneyControl (2008) also named at least 14 board members, up from 12 directors in 2005 (IIL, 2006). IIL’s Annual Report 2007-08 (2008) specified its Board of Directors, as follow: Pramod Mittal, Chairman; Vinod K. Mittal, Vice Chairman & Managing Director; five (5) non-executive directors: U Mahesh Rao, Dr. A Besant C Raj, Manu Chadha, Satya Pal Talwar, and Dr. Basudeb Sen; four (4) non-executive directors as bank nominees: B P Singh (IDBI), K M Jaya Rao (ICICI), M Sankaranarayanan (UTI), Sanjoy Chowdhury (IFCI); and three (3) executive directors: Vinod Garg (Commercial), Anil Sureka (Finance), B K Singh (Steel Plant). The Ispat patriarch, Mohan Lal Mittal, is acknowledged as Chairman Emeritus. T. P. Subramanian is also acknowledged as President and Company Secretary. BusinessWeek (2009) noted the total annual compensation for the following directors: Vinod Garg, $11.9M; Vinod Mittal, $7.2M; and Anil Sureka, 11.9M, while Reuters shows lesser values the same as those published in IIL’s Annual Report 2007-08 [p. 51]. IIL’s Annual Report 2007-08 (pp. 9, 12-19, 2008) revealed that V.K. Mittal is entitled to Rs2.4 crore ($0.6M) annual compensation, 3% of net profit, plus perquisites & allowances to a maximum of 125% of his annual salary; the three (3) executive directors were entitled to Rs 0.9 crore ($0.2M) annual compensation, plus commission of Rs12 lakhs per annum ($29,760) and perquisites & allowances to a maximum of 125% of their annual salaries. One lakh is equivalent to a hundred thousand.
On February 2009, IIL asked creditors to restructure the interest it owes on Rs586 crore [about $112M] of debt into another loan, as the steel industry struggles with declining demand and prices due to the current global downturn. In a letter to IFCI Ltd, its main lender, IIL asked the consortium of creditors— Industrial Development Bank of India [IDBI], Industrial Finance Corporation of India [IFCI], ICICI Bank and Unit Trust India [UTI] (Chatterjee, The Economic Times, 2009)—to consider a request to pay the interest in 60 months beginning April 2013 and also sought a cut in the interest rate from 14%. A month before this, IIL secured lenders’ approval to defer the repayment schedule for the Rs586 crore [$112M] of term loans that had been due to mature between October 2008 and March 2010 (Kalesh, LiveMint, 2009).
The promoters of Ispat Industries, Pramod and Vinod Mittal, have pledged their entire shareholding in the company with lenders, in return for a debt restructuring package that moderates and delays repayment schedules, as the beleaguered IIL makes yet another attempt to rid itself of a mountain of debt and emerge healthy. The last tranche of 9.1% was pledged on 15 May 2009 with Industrial Development Bank of India [IDBI] Trusteeship Services. This is Ispat’s second attempt, the first in 2000 due to a steep price and demand slump in the steel industry, to secure a debt restructuring package and highlights IIL’s growing problems with debt, lack of access to key raw materials and a cheap and ready source of power (Chatterjee, The Economic Times, 2009).
Total debt as a percentage of total assets graphically shows that by the end of March 2006, IIL was financed with 80.12% debt, but the future looks somewhat brighter with decreasing rates to the present, yet still above the lowest in five years (2004-2008), posted last March 2005.
Notes:
All foreign exchange rates for US Dollar to Indian Rupee, based on the online database published by: FXTrade Forex Trading. Exchange rate used for conversion, Interbank rates, were the average for the whole month when such statements were published.
BusinessWeek (2009). Ispat Industries Ltd. (ISPT:Bombay Stock Exchange) Board of Directors, BusinessWeek. New York: The McGraw-Hill, Accessed 02 February 2009. back to text: 1 | 2.
Chatterjee, Dev (2009). Ispat promoters pledge entire stake with lenders. New Delhi: The Economic Times, 01 June 2009. back to text: 1 | 2 | 3 | 4.
Ispat Industries Limited (2006). Annual Report 2005-06. Kolkata: Ispat Industries Limited, August 2006. p. 3, 12. back to text
Ispat Industries Limited (2007). Directors Report – Ispat Industries, Year End : Mar ‘07. Kolkata: Ispat Industries Limited, 06 June 2007. back to text
Ispat Industries Limited (2008). Annual Report 2007-08. Kolkata: Ispat Industries Limited, June 2008. p. 9, 12-19, 51, 60. back to text
Kalesh, Baiju (2009). Ispat Industries moves lenders for debt recast. New Delhi: LiveMint, The Wall Street Journal, 04 February 2009. back to text
MoneyControl (2008). MoneyControl: Company Page – Ispat Industries. On-line: Money Control, 2008. Accessed 02 February 2009. back to text
MoneyControl (2008). Balance Sheet – Ispat Industries. On-line: Money Control, 2008. Accessed 02 February 2009. back to text
Reuters (2008). Basic Compensation: Officers and Directors For Ispat Industries Ltd. On-line: Thomson Reuters, 30 Mar 2008, accessed 19 Jun 2009. back to text