Банкеръ Weekly



The new owners of Kremikovtsi have finally decided to throw some light on their future plans for the development of the iron and steel works. At a special press conference on Tuesday (September 27) Alok Gupta, Executive Board Chairman and CEO of India's Global Steel Holding Ltd., which recently acquired the largest Bulgarian steel-maker, outlines a rosy future for the enterprise. However, a number of questions that have been haunting the public stratum remained without answers. For instance, it didn't become clear at what price Global Steel Holding Ltd. (a part of the Ispat group within the business empire of the Indian family Mital) purchased Finmetals Holding, the owner of a 71% stake in the Sofia-based metallurgical plant Kremikovtsi in August 2005.But the investments, projected by the new owners, are not a secret. Introducing his company's investment plans concerning the Bulgarian steel-maker, Mr. Gupta specified that USD300MN has been earmarked for Kremikovtsi over the next four years. According to initial promises that amount had to enter the enterprise within three years. They will be insured by the group of Mital's family and from long-term credits. Kremikovtsi will be of course a side in these loans, and in the last resort its owner, Global Steel Holding Ltd., as well. An important item - changes in the company's statutes - was voted at the extraordinary general meeting, held on August 15. They entitle the company's Management Board to raise its capital to BGN250MN. This is also a possibility for financing the Indians' investment programme. However, representatives of Global Steel Holding Ltd. said this option was not preferable. Mr. Gupta explained in detail in what the USD300MN would be invested. Some USD60-70MN will go for modernization and repair works in the course of next year in order to enable the steel factory face the challenges of Bulgaria's EU accession, scheduled for 1 January 2007. He underlined that third blast-furnace should be rebuilt and the other two furnaces need overhaul. The third blast-furnace was decommissioned in compliance with the programme for the enterprise's viability, which was a part of the strategy for the development of steel-making in Bulgaria. Its drafting was among the requirements for closing one of the most difficult chapters - Competition - in Bulgaria's pre-accession negotiations with the EU. The cold-rolling facility will be renovated as well. Mr. Gupta said that attention would be paid also to the auxiliary productions and the thermoelectric power plant. Some USD70MN will be necessary for the implementation of Kremikovtsi's ecology programme. It is planned that by end-2006 the waste water should be brought in compliance with the EU ecological standards, and hazardous emissions are to be reduced by 2007. Mr. Gupta voiced hopes that by 2008 the entire production of the iron and steel works will respond to all European ecology regulations. USD181MN will be invested in a production boost. The new owners plan also construction of a chemical plant for by-products. The investment project includes the completion of a second machine for continuous steel casting. Kremikovtsi steel production is expected to see a rise of 30% to 40% within next year and to double within two years and a half. Its output will reach 1.6 million tons in 2006 and 1.9-2 million tons in 2007. This year's steel production will slightly exceed the 2004 output of 1.2 million tons. Raw materials will still be imported from all over the world. Iron ore, for instance, is mainly purchased from the Ukraine, coke - from the Ukraine and Brazil, and coal - from Russia, the Ukraine, Austria, the USA and Canada. At a later stage import of iron ore from Nigeria may begin as well. Kremikovtsi's major clients will remain companies from Italy (Marcegaglia), Portugal, Greece and Turkey. The Bulgarian steel giant is to point on increasing domestic sales as well, the new company CEO added.One of the most important problems of the enterprise, to which the Indians should pay attention are the labour conditions and the safety of machines and equipment in it. That won't be easy, having in mind that Kremikovtsi is already over 40 years old. The average wage in the steel-maker is BGN700 at present. A scheme for additional remuneration, depending on the quantity and quality of output has been worked out in order to encourage workers. They, however, are much more interested in getting their wages in due time. Mr. Gupta's explanation about the delayed payment this month was that the holding had acquired the enterprise at a time when it was in a difficult situation. Supply of inputs was hampered by the floods and the market situation during that period was not advantageous either, because its products got cheaper, while the raw materials became more expensive. The fact that Kremikovtsi still has considerable debts should not be ignored either. The company owes more that BGN67MN to the National Insurance Institute (NII) alone and repays the money according to a plan. Hidden liabilities to the State Receivables Agency popped up as well immediately after the signing of the divestment deal between Finmetals and the Privatisation Agency (PA) in 1999. Inspections of a commission, headed by the former deputy economy minister Nikola Yankov established that these were debts to the Customs Agency for the 1993-1998 period. According to the company's curator Bozhko Bonev, a repayment plan for these liabilities has already been moved to the Finance Ministry. The Indians are still to decide what to do with the plants in Kosovo and Macedonia, owned by Kremikovtsi. The situation is similar regarding the joint project between the steel-maker and a German group of experts for the construction of a cement mill with a total investment of EUR30MN. The participation of the Bulgarian company under the signed contract is a contribution in kind - 30-40 dca of land, construction of infrastructure, and supply of granulated furnace slag. Mr. Gupta said it was still not clear if that project would be of benefit to Kremikovtsi. Alok Gupta succeeded Valentin Zahariev as CEO of the steel giant on August 15 when the extraordinary general meeting of Kremikovtsi shareholders took place. Then the long-expected replacements in the company's management were made. The brothers Vamod and Pramod Mital entered the Supervisory Board, which was chaired by the latter. With that the deal for the acquisition of Finmetals by the Indians was finalized. Then speculations about the purchase price and the promised investments by the new owners began to be circulated in public. The BANKER weekly has already written that according to one of the former candidates for the acquisition of the enterprise and its long-time partner Steno Marcegaglia, Kremikovtsi needs hundreds of millions of fresh money in order to acquire an European appearance. Global Steel Holding Ltd. has a 50-year experience in steel production and manages assets worth USD6BN. The company has plants in six countries on three continents. The holding employs some 20,000 people.

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