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Mittal's Bulgarian plant takeover plan hit

Nevin John in Mumbai | July 16, 2008 09:58 IST

Steel tycoon Lakshmi N Mittal's move to revive and take over the sick steel plant of his brother, Pramod Mittal, in Bulgaria is facing hurdles after a major trade union representing over 2,000 workers raised its opposition.

Giving a new twist to the developments, the union has indicated its support for Vorskla Steel, which is owned by Ukrainian billionaire Kostyantin Zhevago.

The Confederation of Labor Podkrepa, the workers' union, on July 10 blocked the office of Kremikovtzithe, the sick Bulgarian plant, and forced board members to sign the raw material supply contract with the Ukrainian firm.

Sources in Global Steel Holding, which controls the plant, said that the company has written a letter to the internal security and law ministry of Bulgaria to investigate the issue. Global Steel, the holding company of Mumbai-listed Ispat Industries [Get Quote], said in statement that the events that occurred at Kremikovtzi's office "exceed the limits of lawful expression of a social protest".

Earlier, ArcelorMittal had signed tolling and support agreements with Kremikovtzi for supply of raw materials.

According to analysts, the bidders are competing for raw material supply just to win the confidence of the management and labor unions. Kremikovtzi, which accounts for nearly 10 per cent of the country's exports, is currently in the hands of a local court in Sofia that began bankruptcy proceedings on June 16.

The plant has a debt of $1.37 billion. Vorskla and ArcelorMittal are the majors in the fray for purchasing 71 per cent stake in Kremikovtzi.

Despite favourable access to the European markets, the plant was unable to settle its long-term debt that has plagued the company ever since its privatisation in 1999.

Global Steel, the new owner since 2005, has proved to be incapable of resolving the perennial cash squeeze. Arcelor-Mittal has already provided euro 30 million of emergency funding to keep the company afloat. The plant, which has a total capacity of 2.2 million tonne per annum, has been making losses as production dropped to just 40,000 tonne a month.

This is the third instance in the recent past in which a union has played a crucial role in deals after Essar's failed attempt to buyout Esmark and Sterlite's continuing effort to acquire bankrupt Asarco. In Essar deal, the Union of Steel Workers (USW) roped in Russian giant Severstal with a counter offer, while Anil Agarwal's Sterlite has tied up with the union against estranged promoter Grupo Mexico's revival package.

The issues around the new contract with Vorskla will be settled through a special annex, a leader of the Metallurgy Syndicate at the Podkrepa Lyudmil Pavlov told Bulgarian media on Monday. Kremikovtzi has almost 6,500 workers on its pay roles.

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