Understanding GSHL: Epilogue 1: Mega-Deals, Crores Lost

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For the past week, The Grey Chronicles analyzed the investment forays of Global Steel Holdings Ltd. [GSHL] from the Balkans, Bulgaria, Nigeria, Libya, India and Zimbabwe. The series of posts was triggered by a review of Pramod Mittal’s promise, or dreams, made during the inauguration of National Steel Corporation in the Philippines back in 04 February 2004. In as much as several posts have already been published in this blog, the omission of the events that took place in the Philippines was deliberate. Yet, it is but fitting to itemize what insights could be gleaned from GSHL’s investment behavior in foreign lands and their repercussions to Global Steel Philippines.

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Mega-Deals, Crores Lost

In August 2004, Nigeria signed with GIHL a $300 million ten-year management contract of Ajaokuta Steel Company Ltd. [ASCL] (LiveMint, 2008). Nigeria spent $4.4 billion for ASCL (Nigeria World, 2007). Global Transparency Initiative [GTI] petitioned the Nigerian National Assembly in July 2006 and accused Nigerian President Olusegun Obasanjo, Nigerian Steel Minister Liyel Imoke, Pramod Mittal of GIHL and Seun Oyefeso, Executive Vice Chairman of SOLGAS Nigeria and former ASCL Vice Chairman, of conspiracy of forging documents to legitimize the transfer of ASCL from SOLGAS to GIHL (Udo, 2006). GSHL: $300M; Nigeria: -$4400M

In 2007, GIHL proposed a joint venture for ASCL: GIHL (60%), Nigeria (30%) and the Nigerian public (10%). GIHL asked Nigeria to fund its proposed shareholding in ASCL by turning over some of the existing assets, priced at $300 million, to GIHL. If these assets are not enough to pay for Nigeria’s 30% stake, the balance will be recovered later from its earnings. The proposal was later approved by Obasanjo government (Odunlami, The News, 2007). It was also alleged, that GSHL has not been paying the agreed Concession fee of 1% of its profit since it took over Ajaokuta Steel in 2004 (Melah, Elendu Reports, 2007).
GSHL: $0M; Nigeria: -$300M+

Delta Steel Company [DSC] was acquired in February 2005 after Pramod Mittal offered of $30 million payable in three years thus virtually denying Abuja public auction’ winning $31 million bid by BUA Investments Ltd. GSHL was not even part of the bidding (Business Standard, 2008). Ubochi of Nigeria World (2007) claimed that Nigeria spent $1.45 billion in DSC, then renovated it for $45 billion. In June 2005, Irene Chigbue, director-general of the Bureau of Public Enterprises [BPE] claimed that Nigeria had received only a percentage of GSHL’s bid price for DSC contravening the agreement to pay the same in two instalments by February 2005. Also, GINL had paid only $11 million for the controlling shares of 70% it set out to acquire in Delta Steel (Manuaka, Tell, 2005).
GSHL: $30M; Nigeria: -$46,450M

In 2005, GIHL signed a ten-year management contract to run National Iron Ore Mining Co. Ltd [NIOMCO] in Itakpe (Handique LiveMint, 2008) the it carried 138,504 metric tons Iron Ore Concentrate, valued at $15 per ton, and made use of them in Aladja (Delta) but has not paid a dime to Nigeria in accordance with the Concession Agreement (Melah, 2007). To date, there are no news that this had been paid.
GSHL: $2.1M; Nigeria: $0M

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In August 2008, GSHL hired as Alexander Tomov as CEO of Kremitovzki. Bulgaria indicted Tomov a month later on embezzlement charges re: the transfer of over millions of euros from cash-starved Kremikovtzi to the soccer club,CSKA Sofia, and then to offshore companies Tomov controlled. He claimed his asset sales were authorized by the Kremikovtzi’s supervisory board, chaired by Pramod Mittal (Walker, The Wall Street Journal, 2008).
GSHL: €***M; Bulgaria: $0M

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In March 2006, GIHL was awarded a 20-year management “rehabilitate, operate, and transfer” management concession for Zimbabwe Iron & Steel Company [ZISCO] (Engineering News, October 2006). GSHL promised a US$400-million investment over 20 years for the rehabilitation of various facilities (The Engineering News, April 2006). Within six months of GSHL control in 2006, ZISCO terminated a series of supply contracts it had with local and regional suppliers of raw materials, substituting them for new contracts with South African company Stemcor in unclear circumstances (The Financial Gazette, 2006).
Stemcor: $***M; Zimbabwe: $0M.

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In Montenegro, the privatization deal with GSHL on Rudnik Uglja Berane, Ivangrad coal mine, was declared void in June 2007. Its sale to Balkan Energy follows the collapse of a privatization deal with Global Steel, which was declared void in June, after the UK investor failed to pay its €2 million offer price in the agreed timeframe. Global Steel had outbid Balkan Energy in the tender, offering to invest €500 million in the mine and a 120-MW power plant (Platts, August 2007). Balkan Energy offered to pay €1.5 million for Berane’s assets and promised to invest around €100 million in a new 110-MW thermal power plant and €20 million in the coalmine (Platts, July 2007).

“[GSHL] did not pay the agreed price before the extended—second—deadline expired on June 26, nor did they attend the final negotiations on the annex of the privatization contract,” said Berane manager, Dusan Bugarin. Ravi Darbari, vice president of GSHL, said that his company did not have qualms about paying the remaining €1.9 million, after laying down a €100,000 deposit to participate in the tender. GSHL insisted on negotiating the annex to the contract before finalizing the deal. “Berane’s bankruptcy manager wanted us to pay everything up front before negotiating the remaining details. Bugarin should think about it again. Investments worth $600 million [in a new 125-MW TPP and coalmine] are not made light-heartedly … and we did ask for some leeway,” said Darbari (Platts, July 2007).
GSHL: -€0.1M; Montenegro: -€0.980M.

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The Serbian Privatisation Agency [SPA] terminated in December 2007 the €1.21 milion [$1.75 million] sale agreement for Magnohrom, Kraljevo with GSHL made in May 2006, finalized in 09 August 2006, which included an investment programme worth €23.2 million and unconditional acceptance of compulsory social welfare programme (New Balkan, 2006). SPA also decided on claiming payment of bank guarantee in the amount of €300,000 and contract penalty in the amount of €1,136,000 (2007, ). Later, the Serbian government promised Manohrom workers would be paid the €5.5 million of wages still owed to them in three installments during April and May (B92 News, 2009).
GSHL: -€1.436M; Serbia: -€4.064M.

New Balkan (2006). Bidders for Kraljevo’s Magnohrom ranked. New Balkan, 19 May 2006. back to text

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Annotation: In February 2004, GSHL acquired the Philippines’ NSC for about ₱13.25 billion [$240M, prevailing FOREX rate: ₱56.2/US$], payable over 8 years (Manila Times, 2007). That year, it paid ₱1 billion [$17.8M] cash plus another ₱1 billion in standby Letter of Credit up front (Manila Standard, 2004). Except “the first such payout due in October 2006 was paid this [November 2005]” (TeamAsia, 2005), no newspaper headline had seen the light of day whether GSHL paid the remaining balance, in contrast to a barrage of news coverage such as the reopening of NSC, the first export to Brazil, or the commercial operations of Hot Mill, Cold Mill and Plate Mill.
GSHL: $-35.6M; Philippines: -$204.4M?

Revision Note: Annotations on the original, posted last 20 June, transformed the second part subtitled Poor Management into another post, thus subsequently deleted here. Editing the original post would have made it too lengthly for a few minutes read.
This notice is displayed based on this blog’s self-imposed A New Year; New Rules. Please accept sincere apologies from this writer.

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Notes:

B92 News (2008). Solution promised for Magnohrom workers. Balkan Investigative Reporting Network, 11 April 2008. back to text

Business Standard (2008). Nigerian shock for Global Infra, Kolkata: The Business Standard, 04 April 2008. back to text.

Campbell, Keith (2006o). Indian group rejects ‘corruption cesspit’. Creamer Media’s Engineering News, 20 October 2006. back to text.

Campbell, Keith (2006a). Indian steel company in $400m Zimbabwe steel deal. Creamer Media’s Engineering News, 14 April 2006. back to text

Flores, Alena Mae S. (2004). Banks seek P10b bonds from NSC. Manila: The Manila Standard Today, 17 February 2004. back to text

Handique, Maitreyee (2008). Global Steel owes salaries, answers. New Delhi: LiveMint, The Wall Street Journal, 02 April 2008. back to text

Manuaka, Tony (2005). Sold on Credit, Tell, Nigeria’s Independent Weekly. Tell Communications Ltd., 12 June 2005. back to text

Mbachu, Dulue (2008). Nigeria revokes sale of firms to Global Steel. New Delhi: LiveMint, The Wall Street Journal, 04 April 2008. : back to text.

Mafunda, Kumbirai (2006). Hwange blamed for failed ZISCO deal, The Financial Gazette. The ZIMBABWE Situation, 15 September 2006. back to text.

Melah, Bonaventure (2007). Mega Fraud at Ajaokuta. Elendu Reports Online: Elendu Reports, 18 April 2007. back to text: 1 | 2.

Odunlami, Tayo (2007). Privatisation Scams Of OBJ’s Era. Abuja: The News, 24 September 2007. back to text

Platts (July, 2007). Berane cancels sale to Global Steel, Platts Energy in East Europe. Issue 119. Platts, McGraw Hill. 20 July 2007. p. 17. back to text: 1 | 2

Platts (August, 2007). Balkan Energy to buy Berane mine, Platts Energy in East Europe. Issue 121. Platts, McGraw Hill. 31 August 2007. p. 18. back to text

TeamAsia and Hamlin-Iturralde Corp (2005). PNB committed to support Global Steel. Manila: TeamAsia Strategic Communications, 23 November 2005. back to text

Ubochi, Temple Chima (2007). Nigeria: Are We Not Giving Too Much Ourselves Away?. Abuja: Nigeria World, 23 August 2007. back to text: 1 | 2

Udo, Bassey (2009). Dr. Gbenga Obasanjo, Imoke named in Ajaokuta scandal. Online: Jelsoft Enterprises Ltd., 24 July 2006. back to text

Valdez, Katrina Mennen A. (2007). Global Steel to keep investment in Iligan City-based facility. Manila: The Manila Times, 22 May 2007. back to text

Walker, Marcus (2008). Bulgarian Steel Battle Heats Up. New York: The Wall Street Journal, Dow Jones & Company, 04 August 2008. p. A1. back to text.

Government of Serbia (2007). Privatisation Agency breaks Magnohrom sale contract. Belgrade: New Balkan, 19 December 2007. back to text

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