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Newsroom / Press Reports World's Biggest Steel Maker Is Acquiring Ukrainian Mill October 25, 2005 The New York Times In its biggest privatization deal to date, the government of Ukraine sold the country's largest steel mill for $4.8 billion to the steel magnate Lakshmi N. Mittal, the world's third-richest person. Mittal Steel, which is largely controlled by Mr. Mittal and his family, will buy 93 percent of the Kryvorizhstal mill in the southern part of Ukraine. The mill shipped 6.7 million tons of steel in 2004. For President Viktor A. Yushchenko, the deal fulfilled his campaign promise during last winter's Orange Revolution to get a fair price for the steel plant. After becoming president, Mr. Yushchenko reversed the 2004 sale of the plant to a group that included the son-in-law of former President Leonid D. Kuchma at the cut-rate price of $850 million. The deal galvanized the opposition in Ukraine. Today's price for Kryvorizhstal, which Mittal Steel said would be paid in cash drawn partly from its own resources and partly from a Citigroup loan, is more than five times what the former Ukrainian government received. "Today's auction shows that investors can trust Ukraine," Mr. Yushchenko said after the auction. To highlight the openness of the sale and to drive up the price, the auction was broadcast live on Ukrainian television. With the purchase, Mittal Steel, the world's largest steel maker, secures more production capacity in Eastern Europe and provides the Ukrainian government with much-needed capital. Mittal, which is based in Rotterdam, has been expanding outside Western Europe and the United States as part of Mr. Mittal's push to create a consolidated global steel industry. In 2004, Mittal purchased Poland's largest steel maker, as well as stakes in South African and Bosnian producers, mines in Kazakhstan and mills in Macedonia. "This is a key acquisition for Mittal Steel," Mr. Mittal said on a conference call with analysts and reporters from Kiev. The mill is a "high-quality steel and mining asset," he said, adding that Mittal will "continue to follow this consolidation strategy." Kryvorizhstal's production capacity could reach 10 million tons a year, and the acquisition comes with an iron ore mine with possible reserves of one billion tons, Aditya Mittal, Mr. Mittal's son and the company's president and chief financial officer, said during the conference call. Kryvorizhstal also produced 17.1 tons of iron ore. Governments in central and eastern Europe have been privatizing steel mills and mines in recent years to raise cash and attract foreign investors. The big steel companies that buy these assets often improve production methods, making the mills ultimately more lucrative and the end products more attractive to big foreign buyers, like auto companies. Three companies competed for the plant. The German division of Mittal bid against the LLC Smart-Group, a consortium of Ukrainian and Russian investors; and another group that included Arcelor, the world's second-largest steel producer after Mittal. Arcelor is based in Luxembourg. The $4.8 billion sale price was more than double the price originally set by the Ukrainian government, though with steel prices softening in some regions, some analysts in London wondered if Mr. Mittal overpaid. Still, the company's track record is solid, they said. "Mittal has done extremely well with this method in the past," said Matthew Watkins, a senior consultant at CRU Strategies, a metals and mining consulting group. He referred to the company's practice of buying old mills in places like Poland and Kazakhstan and turning them around. The deal was not universally endorsed in Ukraine. The Parliament, which is dominated by the Socialist Party, had passed non-binding resolutions to block the auction last week. The head of the state property fund, Valentyna Semenyuk, a Socialist Party member, resigned before the auction Monday and was admitted to a hospital with high blood pressure. The Communist Party called for Mr. Yushchenko to resign. And the consortium run by Mr. Kuchma's son-in-law is contesting the deal in court. The sale price, however, is likely to deflate the opponents' arguments. "The numbers talk for themselves," said Andriy Dmytrenko, chief analyst at the Dragon brokerage firm in Kiev. The top-dollar price may also embolden Ukraine to pursue a more aggressive privatization program in the future, he said. Mr. Mittal, who lives in London, is the son of Mohan Mittal, who set up the Ispat steel company in India in the 1950's, the precursor to Mittal Steel. In the United States, Mittal has bought up bankrupt plants, including Bethlehem Steel. In 2005, Mr. Mittal became the world's third-richest person behind Bill Gates and Warren E. Buffett, according to Forbes magazine. In 2004, he was host of the South Asian social event of the year when his daughter Vanisha married Amit Bhatia, an Indian-born investment banker. Around 1,000 guests were flown to the south of France for a six-day ceremony that cost $55 million, according to a BBC report. |
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