A classic example of draining a state enterprise through phantom private firms as goods and services enter and exit the company, followed by a one-dollar sale, and then two private owners consecutively refusing to invest in the enterprise so that it make a profit in a market economy.
This, in short, is the newest corporate story of Kremikovtzi, the one-time pride of socialist industry in Bulgaria. In recent months the steel mill and its assets, mainly its thousand decares of land, have become the subject of a tug of war. Almost George Lucas style, Dnevnik daily commented.
The Phantom Menace
When in summer 2007 Sofia mayor Boiko Borissov started talking openly about the environmental problems Kremikovtzi was creating, everybody thought his only goal was to raise an uproar before the elections and to secure himself a second term. However, Kremikovtzi CEO Alexander Tomov almost immediately announced that what motivated Borissov's and Sofia chief architect Petar Dikov's attacks on Kremikovtzi were the interests of Dubai investment funds that wanted to wipe out the plant to build a new super modern residential area in its place, Dnevnik daily said. But this was not everything...
Attack of the Clones
Several other attacks followed in an almost synchronised manner. Feet were being shuffled when Kremikovtzi applied, for a second time, for a complex operating a complex permit. The autumn of 2007 was also marked by the bondholders' first claim to receive re-payment on the 325 million euro principal of the bonds Global Steel Holding issued in spring 2006, long before their maturity. The company controlled by Indian businessman Pramod Mittal owns Finmetals Holding, which in its turn holds 71 per cent of Kremikovtzi's shares. Mittal, however, used his indirect stake in the steelworks as collateral for the junk bond issue and should he turn out incapable of paying, it is exactly Kremikovtzi's assets that will be used to pay off the liabilities. The story dropped off the radar some time later, but it turned out subsequently that the bondholders did start the procedure requesting an advance re-payment of principal, Dnevnik daily said. The reason for this was the company's bad publicity, inaccuracies in the 2006 report and lack of an auditing review. Although the reasons are technical in nature, they are enough for the bondholders to press their claims, since “Mittal doesn't play fair”, as one big bondholder told Dnevnik daily.
In the meantime it was not only the bondholders who became irritable...
Revenge of the Sith
Mittal's incapability to come up with 120 million euro for Kremikovtzi's investment programme, as well as cash to supplement Kremikovtzi's cash flow drove the steel workers to street protests in the last week of January 2008. After the workers took their rally to the heart of Sofia, the Government, which owns 25 per cent of Kremikovtzi's share capital, finally sprung to life, Dnevnik daily said. And it got interested in the possibilities for the possible change of ownership...
A New Hope
In the last week of January 2008, the names of possible buyers for Kremikovtzi became public. These were Ukrainian billionaires Konstantin Zhevago and Rinat Akhmetov, US giant US Steel and possibly Pramod Mittal's elder brother, steel king Lakshmi Mittal. Of them all, only Zhevago has backed up his interest with financial pledges and went as far as to meet Prime Minister Sergei Stanishev, Dnevnik daily noted. And while everybody was waiting for the deal to be signed...
The Empire Strikes Back
Pramod Mittal announced he decided not to sell Kremikovtzi after all. According to Deputy Economy and Energy Minister Nina Radeva, the reason was that he was unhappy with the offers he got. Mittal's response to being pressed to sell was to appoint an internal financial and legal adviser, who will make recommendations on Kremikovtzi's future, but only after conducting a full review of its operations, which would take a couple of months to complete, Dnevnik daily said.
Return of the Jedi
Kremikovtzi's fate can actually be decided by a deal between the Government and the bondholders, who are already openly excluding Pramod Mittal from negotiations. All this can happen after the bondholders take possession of the steelworks. There are already tangible steps being taken in that direction and the ball has been set in motion, the same big bondholder told Dnevnik daily. Their reasoning is that Mittal does not have the money to pay the principal and the accumulated interest now.
Some bondholders think they should take control of Kremikovtzi in the capacity of a big creditor, others insist that the plant should be closed down and its assets sold off to the highest bidder. Another scenario includes the direct intervention of the state. “Our aim is to get our money back. Given Kremikovtzi's importance to Bulgarian economy, the state can take out a loan from any big bank at an interest rate of 6 per cent, twice lower than the bonds, with which to pay us for Mittal's stake and the accompanying collateral – the assets and shares of the company,” a bondholder commented.
What the Cabinet plans, however, is the exact opposite, according to Dnevnik daily. Economy and Energy Minister Petar Dimitrov plans to send the bondholders a letter, asking them to raise, together with the owners, a total of 80 million dollars, the sum needed for Kremikovtzi's development and modernisation plan to be carried out. More than that, he will also ask them to cough up another 50 million euro to solve Kremikovtzi's cash flow problems, and another 20-25 million euro to solve its environmental woes. According to Dimitrov, the bondholders, the owners and the Gabinet should then appoint an administrator that would manage Kremikovtzi's finances. Yet, when asked who actually owned Finmetals Holding now - Mittal or the bondholders - Dimitrov could not give an informed opinion, Dnevnik daily said.
The land Kremikovtzi owns are another juicy morsel, with Radeva claiming last week that one big creditor has already asked a court to temporarily impound the land, Dnevnik daily reported.
The saga continues...
