The Grey Chronicles


Understanding GSHL: Epilogue 2: Leveraged Investments

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. Triggered by a review of Pramod Mittal’s promise made during the inauguration of National Steel Corporation in the Philippines back in 04 February 2004, this post continues the epilogue of the series for insights which could be gleaned from GSHL’s leveraged investments in foreign lands and their repercussions to Global Steel Philippines.

Leveraged Investments

In September 2005, Global Steel Holdings Ltd. [GSHL] took control of Ispat Industries Ltd. [IIL] by consolidating its foreign and Indian investment companies. Finance experts observed that with the consolidation, it will help Ispat Industries to leverage the $7 billion balance sheet of GSHL (Business Standard, 2005). GSHL, however, lost direct control of IIL effective 23 November 2007 (IIL, 2008) and a month later, IIL Investor Relations site reported that 54% of IIL was publicly held. Of the latter, 22.38% was shared by financial institutions, insurance companies and banks, such as: IFCI Ltd., Punjab National Bank, Life Insurance Corp. of India, ICICI Bank Ltd., Industrial Development Bank of India Ltd. and Bharat Kumar Ruia.

Incidentally, in IIL’s 31 March 2009 investor report, the public holds 58.85% of IIL (13.545% were shared by IFCI Ltd., Life Insurance Corp. of India, ICICI Bank Ltd. and Industrial Development Bank of India Ltd.), while the Promoter and Promoter Group held 41.137% of IIL. As a separate corporate entity, moreover, GSHL only holds 2.626% of IIL, unchanged from those published in June 2006. The Mittals (the father plus the two brothers and their wives) personally held 0.164% of the total number of IIL shares in June 2006 and increased it to 0.582% by March 2009.

In February 2009, IIL asked its creditors to restructure the interest it owes on Rs586 crore [about $112M] of debt into another loan. In return for a debt restructuring package, the Promoters, Pramod and Vinod Mittal, again pledged their entire shareholding in IIL with lenders much on similar circumstances back in 2001 (The Economic Times, 2009).

With respect to its foreign investment, Odunlami of The News (2007) described that GIHL did not bring in any investment fund into Nigeria. ASCL was mortgaged to Nigerian banks using its assets as collateral. Elendu Reports (2007) refuted GINL’s $10 million earlier investment, and that SOLGAS carried out some major maintenance and rehabilitation prior to GIHL concession. In 2007, GSHL’s debt burden was about N24 billion [$133 million] to develop Ajaokuta. Its total investment in Ajaokuta was put at $250 million just $50 million short of the current value of Ajaokuta, mutually fixed by GIHL and Obasanjo’s government (Sahara Reporters, 2007).

With the cancellation of GINL concessions in April 2008, contrary to GSHL’s claim that it had spent $500 million in reviving the plants, the Nigerian government stated: “Instead of investing external funds on the completion of both projects as expected, GIHL embarked on massive borrowing from local commercial banks, pledging the assets of Delta Steel as collateral.” GIHL owes Nigerian banks $192 million (Business Standard, 2008).

In April 2005, GSHL paid $155 million to buy Bulgarian Finmetals’s stake at Kremikovtzi after raising $120 million in Europe. GSHL promoters chipped-in about $35 million (LiveMint, 2008). In 2006, GSHL raised another €325 ($400) million bond guaranteed with Kremikovtzi’s assets (IPS, 2009). With this bond, $128 million was paid to the first bondholders; $176 million for plant debts; $30 million as fund-raising cost, while $76 million as working capital (LiveMint, 2008).

In July 2006, the fifth month under GSHL, the Reserve Bank saved Zimbabwe Iron and Steel Co. [ZISCO] from closure by providing an emergency Z$2 trillion (old currency) lifeline (Sokwanele, 2006).

The Serbian Privatisation Agency [SPA] terminated the sale agreement for Magnohrom, Kraljevo with buyer GSHL in December 2007, because GSHL did not invest the sum envisaged for the first year of the contract (Serbia, 2007). GSHL invested €1.3 million ($1.9 million) in Magnohrom, compared to €2.2 million ($3.2 million) set in the pre-privatization investment programme and paid none of the pledged social security funds. However, GSHL sought credits to revive the company. SPA selected GSHL as buyer of 100% of Magnohrom for €1.21 million ($1.5 million) in July 2006 (SeeNews, 2009). By 01 April 2008, a thousand Magnohrom workers demonstrated because of the failed privatization (Ekonomist Media, 01 Apr 2008). Serbia offered RSD 550 million to ensure severance pays of Magnohrom workers (Ekonomist Media, 21 Apr 2008).

In Libya, the letter published in Consumer Complaints, India (2009) also claimed, “There was no investment made by company [GSHL] (except gift of Lime coating and Oxygen Injection system for DRI plant).” [Emphasis added.]

In February 2009, Vehid Mesic, the head of Bosnia’s Lukavac Coke and Chemistry Multiplant [KHK], which co-founded Global Ispat koksna industrija Lukavac [GIKIL] with GSHL announced that Tuzla Canton and KKK representatives discussed problems with the export of coke that halted some parts of the production process. GSHL wanted to acquire a share in KHK, but there was the issue of BAM 46 million GSHL still has not invested in GIKIL (Nezavisne novine, 2009).

Annotation: The amount of investment at GSPI varies from $30 to $700 million, which this blog already addressed. Even the supposed capacity expansion at GSPI became another post.

Malaysian-based Tael Capital, with close links to Danaharta, teamed-up with CLSA Exchange Capital and helped Pramod Mittal renew his 1994 bid for and won NSC ten years later (Philippine Star, 2004). The basic acquisition costs for NSC is the sum of cash and Letter of Credit amounting to $35.6 Million. TeamAsia (2005), moreover, commissioned by GSPI to issue a press—«praise»—release stated, “GSPI has invested approximately $56 million in acquisition-related and development costs, of which US$35 million went to rehabilitation of the [NSC].”

Flores of The Manila Standard Today (2004) explained that of the ₱1 billion cash payment, about ₱500 million [US$8.9 million, using prevailing FOREX rate in February 2004 at ₱56.2/US$] went to the banks and the balance, i.e., about ₱500 million [i.e., US$8.9 million], spent for pre-operational expenses of the Iligan plant. Probably learning from lesson with the Malaysian investors of NSC, the bank sources would not likely extend new loans to GIHL/GSHL/GSPI.

Corporate Communications head, Sangram Mohanty, claimed: GSPI had not borrowed a single centavo from any local bank to sustain its Iligan operations. GSPI, however, has a pending application with Philippine Export-Import Credit Agency for a sovereign guarantee on $20 million worth of loans to bankroll its acquisition of raw materials (The Manila Standard Today, 2007).

In the wake of news reports that GSHL was selling the former NSC plant to another Indian company, among others, “[Global Steel] will be staying in the Philippines for a long time. That is the reason why we invested in the first place. All these things about the sale are not true,” Sangram Mohanty said (Manila Times, 2007). This was soon followed by its announcement of the $1.5 [or $1.6?] billion Blast Furnace project!

Perhaps, The News article by Odunlami (2007) says it all about Pramod Mittal:

“[I]n reality, is living on bank loans, constantly borrowing from one bank to the other. In recent years, the share value of his companies has been plummeting, particularly in India, where the parent company, Ispat, declared losses of over $50 million in a year, and is now owned mainly by banks. Apparently, he currently owns less than 50% of some of his companies and has only controlling interest in the steel plants, which can mean sometimes owning as little as 30% shares. Sources hinted that he forms holding companies, registering them in offshore tax havens, then transfers ownership of his own personal shares to these SPVs to protect those shares, while he continues to dilute the remaining shares by borrowing more and more. … Now Pramod is believed to be asking government to help him with funds to refurbish the steel plants, which he actually agreed initially to turn around by himself.”


The Business Standard (2005). Global Steel holds 54% in Ispat. Mumbai: The Business Standard, 27 September 2005. back to text

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

Chatterjee, Dev (2009). Ispat promoters pledge entire stake with lenders. New Delhi: The Economic Times, 01 June 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.

Ekonomist Media (07 Apr 2008). Government sending work group goes to Magnohrom. Beograd: Ekonomist Media Group, 07 April 2008. back to text

Ekonomist Media (21 Apr 2008). Severance pays to workers of Magnohrom until May 10. Beograd: Ekonomist Media Group, 21 April 2008. 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

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

GSHL-Camp Libya [All harassed employees of Global Steel Holding Limited] (2009). Letter titled Non payment of salaries to employees. Camp Libya: Consumer Complaints, India, 19 May 2009. back to text

Handique, Maitreyee (2008). Global Steel owes salaries, answers. New Delhi: LiveMint, The Wall Street Journal, 02 April 2008. back to text: 1 | 2

Ispat Industries Limited (2008). Annual Report 2007-08. Kolkata: Ispat Industries Limited, June 2008. p. 9, 12-19, 51, 60. back to text

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

Nezavisne novine (2009). Still no solution for KHK and GIKIL. PressCut, 03 February 2009. back to text

Odunlami, Tayo (2007). Privatisation Scams Of OBJ’s Era. Abuja: The News, 24 September 2007. back to text: 1 | 2

The Philippine Star (2004). Group behind GIHL of India identified. Place: The Philippine Star, 04 March 2004. back to text

Ramos, Elaine Ruzul S. (2007). Global Steel investing $1.6b more, brushes off sale rumor. Manila: The Manila Standard Today, 12 December 2007. back to text

SeeNews (2008). Global Steel Holdings Serbian Unit Magnohrom Halts Operations. Sofia: SeeNews, 11 April 2008. back to text

Sokwanele – Zvakwana (2006). ZISCO: The cost of Zimbabwe’s kleptocracy. Zimbabwe Civic Action Support Group, 14 December 2006. 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

Umar, Col. Abubakar (2007). How Obasanjo and Co. Looted Nigeria in 8 Years. Sahara Reporters, 2007. 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

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