The Grey Chronicles


Understanding GSHL: The Bulgarian Ballgame

In 1994, Bulgaria ratified the Europe Agreement, the legal framework for bilateral relations with European Union [EU] until accession. Bulgaria submitted a National Steel Restructuring Programme in March 2004 to be achieved by 2007. In 2005, EU documents (2006) reported that Bulgaria’s raw steel output stood at 1.9 million tons, 80% were flat while 20% were long products. Productivity was pegged at 240 ton/person compared to 520 ton/person for EU. The largest, Kremikovtzi, was responsible for 65% of the production. The two others steel companies were Promet and Stomana. Capacity utilization was at 65% while turnover performance stood at €0.8 Billion. Bulgaria’s consumption of finished products stood at 1.1 million tons or 140 kg/capita. Bulgaria joined the European Union in January 2007 (Walker, The Wall Street Journal, 2008).

KremikovtziIn its heyday, the 1.4-million-tons-per-year Kremikovtzi employed 8,000 people, down from 15,000 workers in 1989 (Ciobanu, 2009), and indirectly affected the income of another 100,000 people (Zee News, 2008). The mill is a key customer for Bulgarian ports and the state railways company, providing the incomes of at least another 50,000 households, labour unions claim (Kostadinov, The Sofia Echo, 2009).

Bulgaria sold 71% of Kremikovtzi to Bulgaria’s Daru Metals, which later was renamed to Finmetals Holding in 1999 for a token US$1 (The Sofia Echo, 2005). The Bulgarian state has a 25.3% stake (Reuters, 2006). In April 2005, GSHL paid $155 million to buy Finmetals Valentin Zahariev’s stake at Kremikovtzi after raising $120 million in Europe. GSHL promoters contributed about $35 million (Handique, LiveMint, 2008). By then, the plant was badly in need of major investment: equipment modernization to both make it commercially viable and to meet EU pollution standards (Walker, The Wall Street Journal, 2008). A Sofia court declared the steelmaker insolvent on 31 December 2005 — four months before the bond was issued. The bondholders, including London and New York-based hedge funds, have appealed the decision (Economia, 2008).

In 2006, GSHL raised another €325 ($400) million bond, at a high interest rate, 12% (Walker, The Wall Street Journal, 2008), guaranteed with plant’s assets (Ciobanu, 2009). Kremikovtzi’s new Chief Executive Vilas Jamnis claimed GSHL plans to invest €300 million over the next four years to boost finished steel output to 1.5 million tons that year and 2.0 million by 2009 (Reuters, 2006). Around $128 million of that was spent, however, to pay the first bondholders and $176 million paid past liabilities such as to the railways and the gas and power suppliers. About $30 million went toward fund-raising cost, while $76 million was set aside as working capital (Handique, LiveMint, 2008). Incidentally, on 05 December 2006 IndusView (2006) reported that Pramod Mittal bought CSKA Sofia, a Bulgarian soccer club, for an undisclosed amount. Media reports suggested $20 million. Bulgarian businessman Vasil Bozhkov, the seller, confirmed the acquisition of 100% stake in the club. In August 2008, Pramod Mittal hired as CEO, Alexander Tomov, a senior Communist-era official whose more recent roles include deputy prime minister, leader of four different political parties and chairman of Bulgaria’s top soccer club, CSKA Sofia. The following month, Bulgarian prosecutors indicted Tomov on embezzlement charges re: the transfer of over millions of euros from cash-starved Kremikovtzi to the soccer club, 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). Last heard, Pramod Mittal is desperately trying to sell CSKA Sofia (Vivek Sharma, 2008).

But those funds didn’t produce notable upgrades of the plant. “Nobody knows where most of the money went,” says Mr. Trenchev, of the union confederation. An association of the bondholders, led by U.S. and U.K.-based hedge funds QVT Financial LP, Mars Capital Group and York Capital Management LLC, says the same (Walker, The Wall Street Journal, 2008). A Kremikovtzi worker even claimed that improvements have been made on the outside of the plant and to make equipment look new, but that inside facilities are rotting (Ciobanu, 2009).

Workers protested throughout the entire 2008 after the mill stopped working, asking the government to force out GSHL—accused of poor management and failed to keep the steelmaker financially viable. Trade unions readied to go out on the streets again because Kremikovtzi’s workers had not been paid since last November 2008 (Kostadinov, The Sofia Echo, 2009).

Bulgarian Economy and Energy Minister Petar Dimitrov, quotes BTA news agency, that if GSHL failed to provide €120-140 million for upgrading Kremikovtzi by April 2008:

“The state will use all its powers prescribed by the law to ensure that the plant goes ahead. … If Global Steel fails to fulfill its obligations to the plant, the state may take over as owner of the plant, if there are no other ways to deal with the situation.” (Zee News, 2008).

Pramod Mittal officially claimed at the Executive board session in January 2008 that he intends to “attract investors”, and not “to sell” (Yoncheva,, 2008). Four bidders declared interest in March 2008 – Ukrainian billionaire Konstantyn Zhevago, US Steel, Lakshmi Mittal, and Ukraine’s richest man, Rinat Akhmetov (Novinite, 2008). Sunday Times reported that Pramod even asked Lakshmi “to help him” with investments in Bulgaria and Nigeria (Bivol, The Sofia Echo, 2008). Lakshmi Mittal thwarted all Pramod’s hopes for salvation of Kremikovtzi, saying: “I cannot mix family affection with business,” in a French e-edition Les Echos interview (Standart News, 2008). He elaborates:

“Arcelor Mittal was approached by bankers dealing with the cession. If there is any economically justified possibility or potential for synergy, Arcelor’s management board will definitely look into the case. My family and me, however, made a promise not to get involved in the process, which is why the board appointed a person, who isn’t a relative – Michael Wurth – to examine the file. Therefore, I shall by no means intervene in the situation without permission from the board.”(Standart News, 2008).

Nevertheless, in April 2008, Lakshmi Mittal offered €50 million for Kremikovtzi, a third of the €150 million Pramod paid Finmetals (Bivol, The Sofia Echo, 2008). In May, the plant defaulted on its bond payments, according to Justin Holland, vice president of investment bank Houlihan Lokey Howard & Zukin, representing creditors who own about half of the bonds. The bonds have lost close to 70% of their value since being issued in 2006 (Walker, The Wall Street Journal, 2008). By September, Kremikovtzi was placed in liquidation, amid a dispute with foreign investors who fear they could lose their claims on a €325 Million secured 2006 bond (Economia, 2008).

In May 2008, ArcelorMittal is believed to have agreed to pay $1.2 billion, in a structured deal, for Kremikovtzi. As part of its purchase commitment, ArcelorMittal has given a loan of $47 million to meet the steelmaker’s immediate fund requirements. It will pay $200 million towards working capital requirements and bring in $500 million for modernization. Another $500 million will be paid to creditors. ArcelorMittal and Vorskla Steel submitted their offers earlier to acquire Kremikovtzi (Datta, The Economic Times, 2008).

Brazilian miner CSN mulled over a possible deal for more than a month. Ukrainian steelmaker Smart Holding pulled out its offer on February 25. Constrained by the global recession, investors were wary of making big decisions while commodities prices remained low. Moreover, trade unions claimed that about 1000 people have left the mill over the past two months and threatened to have protests every day for at least a week in March 2009 (Kostadinov, The Sofia Echo, 2009).

On March 2009, Lakshmi Mittal intensified efforts to take control of Kremikovtzi. In a letter to the Bulgarian Cabinet, he pledged to restructure the mill and invest enough money to absorb its outstanding liabilities. He said, “We have appointed Merrill Lynch to rope in a strategic partner who can join Global Steel to help revive Kremikovtzi, which has no raw material and is facing a lot of problems.” (The Financial Express, 2008)

Dnevnik daily reported on 21 April 2009 that Pramod Mittal told the Bulgarian Cabinet his interest of turning around Kremikovtzi. In a letter addressed to Prime Minister Sergei Stanishev and Economy Minister Petar Dimitrov, Mittal promised a detailed recovery plan in the near future but made no reference to Kremikovtzi’s two blast furnaces, the most polluting of its production facilities (Bivol, The Sofia Echo, 2009). Levels of pollution in the area are so high that even an alternative plan proposed by Sofia mayor Boyko Borisov — to tear down the plant and create a luxurious commercial and residential space — was infeasible (Ciobanu, 2009).


Bivol, Alex (2008). Pramod Mittal ready to sell Kremikovtzi to brother Lakshmi — report. Sofia: Sofia Echo Media Ltd., 14 April 2008. back to text: 1 | 2

Bivol, Alex (2009). Full circle — Pramod Mittal not giving up on Kremikovtzi. Sofia: Sofia Echo Media Ltd., 21 April 2009. back to text

Ciobanu, Claudia (2009). Bulgaria: Steel Plant Privatisation Fails to Deliver. Sofia: Inter Press Service [IPS], 13 March 2009. back to text: 1 | 2 | 3 | 4.

Commission of European Communities (2006). Bulgaria. Brussels: European Union, 20 November 2006. back to text

Datta, Kausik (2008). LNM bags brother’s Bulgarian steel co. New Delhi: The Economic Times, 21 May 2008. back to text

Economia.GR (2008). Bulgaria’s Kremikovtzi Steel goes into liquidation. Athens: Kerkyra, September 2008. back to text: 1 | 2

Handique, Maitreyee (2008). Global Steel owes salaries, answers. New Delhi: LiveMint, The Wall Street Journal. April 2008. back to text: 1 | 2.

IndusView (2006). Mega Deals. The IndusView, Vol. 12, Issue. 16, 26 December 2006. p. 3. back to text

Kostadinov, Petar (2009). List of Kremikovtzi suitors short — minister. Sofia: Sofia Echo Media Ltd., 05 March 2009. Photo: Nadezhda Chipeva. back to text: 1 | 2 | 3.

Novinite (2008). Turkish Company Eyes Bulgaria Biggest Steel Mill Kremikovtzi. Online: Novinite, 01 March 2008. back to text

Reuters (2006). Bulgarian steel mill to close 300 mln eur bond. Singapore: Reuters, 21 April 2006. back to text: 1 | 2

Sharma, Vivek (2008). The Other Mittals, The Vivek Sharma Blog. 24 Apr 2008. back to text

Standart News Ltd (2008). Lakshmi Mittal: I Won’t Tolerate Scrounger Relatives. Issue 615, Year XV. Sofia: Standart News English Edition, 22 April 2008. back to text: 1 | 2

The Financial Express (2008). Mittal keen to takeover Global Steel’s mill. New Delhi: The Financial Express, March 23, 2008. back to text

The Sofia Echo (2005). Kremikovtzi invests in ecology. Issue 7. Sofia: The Sofia Echo, 18-26 February 2005. 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: 1 | 2 | 3 | 4 | 5 | 6.

Yoncheva, Olga (2008). Mittal is Not Selling ’Kremikovtzi“, Seeks Investors, Sofia: Web Media Group JSC, 30 January 2008. back to text

Zee News Bureau (2009). Firm run by L N Mittal’s kin faces protests in Bulgaria. New Delhi: Zee News Ltd., 24 January 2008. back to text: 1 | 2.

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