The former owner of “Kremikovtsi” Pramod Mittal and half a dozen of his relatives sent a letter through their lawyer to the then Prime Minister Nikolay Denkov, inviting Bulgaria to compensate them with 500 million dollars for the destruction of “Kremikovtsi”.
They claim that after buying the plant from Valentin Zahariev, it flourished in their hands until the state intervened with the corrupt intentions of the then political elite (the triple coalition). According to them, with its actions, the government of Sergey Stanishev has suffocated the company, pushed foreign concerns away from their intention to buy “Kremikovtsi” and ultimately the Mittal family as investors were harmed. They derive the legal basis for their claim from a bilateral investment protection agreement between Bulgaria and India, concluded in 1999.
How well-founded the claims are
Mital's actions in “Kremikovtsi“ to put it mildly, they represented draining of the plant, and the only reason they were not called a crime is that all the money was exported with the permission of the state, which through the Ministry of Economy at that time held 25% of the capital and had a representative on the Supervisory Board. Below I will first tell the story of Pramod in Bulgaria, and then all the tragicomics of the character, who went to wash away the shame of his personal bankruptcy in the UK, collecting what he can from his former house of cards. The term “house of cards” is appropriate because at one point the business structure headed by Pramod Mittal resembled an empire. All acquisitions, however, were financed with debt in the decade of low interest rates after the bursting of the dot-com bubble. And at no time did the ideas for synergy between different plants in the Balkans and in Africa work to create value greater than the loans that were taken out.
Buys a factory on the Ninth of September
Pramod Mittal's interest in “Kremikovtsi“ dates back to 2004. Then the first cohort of Indian engineers entered the plant and began assessing its condition. The so-called du diligence also takes place in parallel. This is a documentary check of the balance, collection of receivables, collectability and maturity of debts, availability of work permits and everything else that would help the potential buyer to form a clearer picture of the value of what they are buying. A year later, Pramod Mittal's Global Steel Holding bought 100% of “Finmetals Holding”. This is the holding that owns “Kremikovtsi“ and belongs to Valentin Zahariev, who privatized the plant in 1999. The reason the owner of 71% of the capital bought the form is that the shares themselves are frozen. Another 25% is owned by the state and between 3 and 4 percent is in small shareholders after mass privatization. Thus, Mittal acquired not the plant itself, but the ownership of the company, which holds 71% of the plant's capital. They should work to drop the lien on the shares. Indians are aware that under the privatization contract, they must implement a “Viability Plan” for hundreds of millions, involving the closing of productions, installation of cleaning technologies and other obligations. Otherwise “Kremikovtsi“ will have to bring back state aid from the 1990s, which has become unacceptable in light of our accession to the European Union. They must also service the accumulated hundreds of millions of arrears to the NRA, NOI, Bulgargaz, NEK and BDZ.
Global Steel itself is the business wing of most of the Mittal family. The father and younger sons – Pramod and Vinod. The eldest son Lakshmi Mittal was the first to realize the possibilities of internationalization of the business and after a disagreement with his relatives he left the family business. He created his own business in the mid-90s and prospered. In 2005, he acquired French – the Luxembourg concern “Arcelor“ and as the owner of “Arcelor-Mittal“ heads the largest metallurgical group in the world. In short, its market valuation makes him the richest man in the world.
The rest of the family realizes their mistake and belatedly follow in their big brother's footsteps. Pramod and the rest of the Mittal Family buy “Kremikovtsi” and several more powerhouses in the Western Balkans and in Africa. Exact price for buying “Kremikovtsi“ is not known, but media reports believe it to be somewhere between US$100 and US$135 million. Mittal does not withdraw its own money, but borrows about 150 million dollars from “Stemcor” and “Salzguitar“. These are international traders of steel and raw materials. As a guarantee, the new formal owner of the majority shares, Global Steel Holding, concluded a long-term contract to sell them the production of “Kremikovtsi“, and they would supply him with ore, coal and other necessary materials.
„Kremikovci“ was acquired, but despite a year's due diligence, it turns out that €100 million is lost because it turns out to be bad debt. Mittal realizes that he has passed, but he does not give up. The very next year, it issued bonds for 325 million euros maturing in 2013. The loan was taken out through the capital markets, with the bonds being bought by investment funds with interests in Eastern Europe. With the permission of the supervisory board, in which the Bulgarian government participates, of the received 325 million euros, for which "Kremikovtsi" is a debtor, Pramod Mittal took home 99 million euros. This is done by virtue of a contract that allows the combine to trade directly with “Stemkor” and “Salzgitter” and not through the mediation of its majority owner Global Steel Holding. At this moment, sometime in the second half of 2006, Pramod Mittal took back what was given to “Kremikovtsi”. On the 12th month, his investment was repaid with a small profit considering the dollar/euro exchange rate at the time, and everything after that he received was going to form an even bigger profit. This is a record short period for paying off a business acquisition expense. The price is paid by the plant, and if in the meantime “Kremikovtsi” goes bankrupt, it will not cause a loss to Mittal, because he has collected his own, that and above. He who eats the pie is not mad, but he who gives it to him.
More draining
Pramod's impudence does not end there. As the majority owner, with the consent of the state, it charges the plant to pay Global Steel for management and technical services. Two contracts were awarded, each worth $62.4 million. And he even tries to collect the money in advance, proposing to the general meeting of shareholders to allow himself to buy 80% of his claim, and in exchange to forgive 20% of the value of the contracts. That is, $99 million now, instead of $124.8 stretched over time. It is not known why he withdrew this proposal from the agenda of the general meeting at the last moment, which means that he does not get the 99 million in total, but cash flows still flow to the holding, which owns the majority share of 75%.
How does the state allow this to happen, and why does it not want the combine to develop, is a question I asked the then Prime Minister Sergey Stanishev and his Economy Minister Petar Dimitrov”. I never received an answer. Stanishev even got up and left the press conference in the granite hall of the Council of Ministers after one of my clarifying questions.
Only half a year after the issuance of the bonds, the first signals are received that the bondholders are worried about their money. In January 2007, they arrived in Bulgaria to learn first-hand how the plant ended 2006 with a loss. Due to bad weather, their plane lands in Belgrade and from there they take a taxi to Sofia. At the end of October 2007, it became clear that the bondholders were again not satisfied with the performance of “Kremikovtsi” and form a coalition to pressure Pramod Mittal by threatening to foreclose on his claim.
Necessary investments under the viability plan are not being implemented. In 2008, just the last nine months before the global financial crisis began, the economy was booming. The price of steel is reaching historical records. Everyone wins everywhere, only “Kremikovtsi” crawling on its belly with uncertain supplies of raw materials. Whether Stanishev's government felt it had made too many compromises with Mittal and he abused the arrangements, or for some other reason, the state is changing its attitude. From a benevolent silence on the drain in the previous two years, in 2008 Mittal was pressured to show responsibility for its obligations to the plant or sell it.
In the summer of 2008, creditors of “Kremikovtsi“ they want the company to be declared insolvent and this is happening. Because of his failure, Pramod Mittal became persona non grata in Bulgaria. One by one, the Indian engineers are leaving Bulgaria. The beginning of the end begins.
On what grounds does Pramod Mittal believe that Bulgaria has harmed his interest remains to be seen. Publicly known history shows that he must forever thank Bulgaria for the quick profit it provides him. In the following years, other ventures of Pramod Mittal in the Balkans and in Africa were similarly ruined. He was briefly arrested in Bosnia and Herzegovina on charges of fraud. This does not prevent him from maintaining a luxurious lifestyle with a huge house in the London district of “Mayfair”. For the uninitiated, it is a five-minute walk from Buckingham Palace, borders the legendary “Hyde Park” and London's most expensive shopping street – “Oxford“.
In 2020, Pramod Mittal declared personal bankruptcy, but his appointed administrator (in our country we call them receivers) failed to satisfy the creditors of even 20% of their claims. However, Mittal keeps his palace and claims to live on handouts from his relatives.
One thing in mind
The original request “Kremikovtsi“ to declare insolvency brought a small and unknown company supplier of snacks. Her claim was worth several thousand of all the plant's liabilities, and it was clear to all that behind it lay a player with larger interests. There was a game of big interests hiding behind the proxies.
Such, for example, were the holders of the bonds. Depending on when they bought them, some risked losing everything, others less. Divided into several camps, some of the bondholders believed that they would receive most of their claims if “Kremikovtsi” sold as a whole. Others thought the sale should be piecemeal. Some of these factions worked in their own ways, often resorting to lobbying and media campaigns. Others could only pass. In the end, all real estate, infrastructure and production facilities were sold to one. Buses, wagons and more were sold piecemeal, but they were not relevant to a possible resumption of production.
At one of the auctions for the sale of the large lot, a grandfather appeared with a beat-up Jeep, who explained that he had hundreds of millions and wanted to buy. When it turned out that no one had made the mandatory participation deposit (deposit), the grandfather said that his bank had somehow failed to issue the ordered transfer and left.
Pure theater and that is why I do not rule out the possibility that behind Pramod's claims are also bondholders who lost from the bankruptcy of the plant. From the asset sale, bondholders received less than 10% of the face value of the bonds, and it is not impossible that they are now trying to recoup the losses. This suspicion is supported by the question of how, after his bankruptcy, Pramod Mittal can hire top-notch lawyers and afford the costs of a case? Unless someone is behind it and uses it as a proxy for their own purposes, and he gets a chance to wash the shame off his name a little.
Experience shows that sooner or later the ultimate stakeholder emerges. In the meantime, the conclusion remains for Bulgaria that an internationally failed schemer like Pramod Mittal is once again showing insolence and should be given an uncompromising rebuff if it comes to a case. Molon Labe – “Come and try“ (if it bothers you).