Bondholders of Bulgaria's biggest steel mill Kremikovtzi withdrew their support for ArcelorMittal to acquire the troubled steelworks after the Luxembourg-headquartered company has postponed signing an agreement to buy out the bond issue, Dnevnik daily reported on July 11.

ArcelorMittal and the committee of bondholders, which controls 51 per cent of the Kremikovtzi bonds, had earlier agreed in principle that the steel giant would buy the bonds at 79 per cent of their nominal value. In the meantime,ArcelorMittal has signed an outsourcing deal with Kremikovtzi.

"We are not sure that ArcelorMittal wants to acquire the steel mill immediately. A bankruptcy procedure could last between five and eight years after which, for any number of reasons, the outsourcing agreement could be cancelled. Outsourcing makes no acquisition commitment and could end up being suicidal for the steel mill," AngeloMoskov, the chief executive of QVT Fund, told Dnevnik.

The hedge fund owns 12 per cent of the 325 million euro seven-year bonds issued by the steel mill's current owner, India's Global Steel Holdings, in 2006.

Instead, the bondholders committee now plans to take over the management of Kremikovtzi, injecting 100 million euro to boost cash flow and pledging to secure a further 150 million euro in outside financing through another bond issue and a credit line.

The plan drafted by a consultancy firm, hired by the bondholders, envisions the conversion of all the steel mill's debt into equity and Kremikovtzi's sale to a strategic investor.

The bondholders committee hopes to force the hand of ArcelorMittal and Ukrainian billionaire Konstantin Zhevago, the two main bidders for Kremikovtzi, to agree a deal that would allow them to recoup the money invested in the bonds, Dnevnik said. The committee hopes to take formal control of the assets used to guarantee the bonds - 100 per cent in Global Steel Holdings' subsidiary Finmetals; 71 per cent in Kremikovtzi, now impounded by court order; and key production assets of the steel mill - within a month.

In the meantime, the mill's current managers have signed a deal with Vorskla Steel, which has close links to Zhevago, for raw materials delivery. The deal effectively cancels the similar agreement with ArcelorMittal, which had an exclusivity clause, Dnevnik said.

The deal was sealed in the early hours of July 11 after some three thousand Kremikovtzi employees protested in front of the steel mill's offices, demanding that the management signs the agreement, which they see as a means to keep the steelworks operational while the bankruptcy suit is heard in court.