East European steel. Mittal’s mettle

Date: 11/10/03

Another big and rusty challenge

OUTMODED, debt-laden and overmanned, Huta Katowice is the largest in a clutch of Polish steel mills being privatised as part of Polskie Huty Stali (PHS) - an unlikely prize for a foreign investor. Yet LNM, the world's second-largest steelmaker, whose initials are those of its founder and boss, Lakshmi Mittal, a London-based Indian billionaire, has a penchant for distressed post-communist steelworks. If it finalises a recent deal to buy the concern, LNM would mark the firm's fourth East European acquisition since rescuing Kazakhstan's Karmet plant in 1995.

Along with US Steel, the other shortlisted bidder, LNM has become a white knight of the region's sickly steel industry. But it has not been smooth sailing. The firm's acquisition in 2001 of Romania's loss-making Sidex mill was tarnished by allegations that a large donation was made to Tony Blair's Labour Party to get the British government to lobby the Romanian one on its behalf. Although Mr Mittal denied that there was any connection between the donation and the Sidex bid, the affair still dogs him.

His chumminess with Kazakhstan's authoritarian president, Nursultan Nazarbayev, has raised eyebrows too. Yet he wins plaudits for turning around the once-decrepit Karmet. “The man is a national hero in Kazakhstan,” says Philip Tomlinson of the CRU Group, a steel consultancy.

The Romanian Sidex plant, which was deep in debt when LNM took it over, has also been swiftly revived, and the Czech Republic's Nova Hut, acquired by LNM last year, is getting back on its feet. Sorting out the Polish steel sector would be a bigger feat. The government only recently heeded a decade of advice to consolidate its big mills. If LNM does acquire PHS - it is currently negotiating a “social package” with combative trade unions as part of a deal that would involve a complex debt-for-equity swap - it will venture into Poland's depressed Silesia area, already hard hit by coal mine closures.

Mr Mittal believes eastern Europe presents huge opportunities for steelmakers. As post-communist economies grow, so will the demand for quality steel, particularly from the large automotive and white-goods manufacturers. His next quarry may be Dunaferr, a troubled Hungarian mill that is about to be sold. But the PHS bid could dampen his appetite. Poland's nationalist parliamentarians want it to remain in state hands and have been busy grilling the treasury ministry about Mr Mittal's controversial past.

Feature looks at the steel works in Eastern Europe taken over by LNM

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