L N Mittal : The steel mogul

 

Laxmi Niwas Mittal, 48, a billionaire and king of steel with a capacity of more than 70 million tons, is a Kolkata-born London-based industrialist, and a Forbes 100 billionaire and the richest Indian in the world. Mittal inherited the foreign operations of the family business and built it into a global steel conglomerate. The companies in the LNM Ispat Group, of which Mittal is the controlling shareholder, include Ispat International N V, Ispat Karmet and Ispat Indo.

Steely journey
Mittal's father's business Ispat India had weathered many storms in the last decade. At the tender age of 26, Laxmi Mittal was dispatched to Indonesia to oversee the family’s mill, now called Ispat Indo. Laxmi Mittal parted ways with his father’s in 1995. In the late ’80s, Mittal moved into acquisition mode and bought mills in places like Trinidad and followed that up in Canada. The greatest coup was when he snapped up the loss-making Sibalsa Mill in Mexico for $220 million in 1992. The 20-year-old facility was originally built by the Mexican Government for around $2 billion. Most steel industry analysts say the deal was extremely favourable and till recently the plant was the mainstay of the LNM empire. His mills in Trinidad and Canada and Ispat Mexicana gave him a strong base in North America. In 1998, he consolidated his position in the continent by buying Inland Steel.
In the mid-’90s Mittal decided that he needed a more central base for his rapidly growing empire and shifted to London. There he set the tone that other Indian industrialists have watched enviously — and some have tried to emulate. His neighbours in Bishop’s Avenue, Hampstead include the Sultan of Brunei and King Fahd of Saudi Arabia. And other Indian businessmen — perhaps hoping that the Mittal effect would rub off on them — have also taken up premises near the LNM office in Berkeley Square House, Mayfair.
The suceess of Ispat Indo helped establish a platform for rapid global expansion in the steel industry, which until then had been almost entirely national. This led to the creation of one of the lowest cost and fastest growing steel producing mills in the world. The success of the first acquisition helped boost moral of the group and induced to bid for second and more acquisitions to help capture maximum possible market share in steel industry. With Mittal buying the Chicago based Inland Steel, the Ispat International group became the world’s third largest producer of steel. He also acquired a third of a leading German wire products company, Westfaelische Drahtindustrie GmbH.
The Rotterdam based Ispat International N V also acquired Stahlwerk Ruhrort GmbH(SRG), a steel maker in the Ruhr, and Walzdraht Hochfeld GmbH (WHG), a wire rod manufacturer in Duisburg. Both SRG and WHG belonged to the Thyssen group, a leading German industrial consortium. The turnover of the two German companies, which have a combined annual raw steel production of 1.5 million tons, is estimated at 1.2 billion Deutsche marks ($ 2.13 billion).

Group structure
The group consists of two halves. The first is a publicly listed company, Ispat International, which includes a clutch of steel mills from Canada to the Caribbea. The second is the privately held, LNM Holdings, which controls a string of companies (usually in more difficult locations) including Karmet and the other eastern European mills. Unfortunately, Ispat International didn’t live up to its initial promise when it listed in 1997. Mittal has always insisted that he hasn’t lost faith in listed companies. But all his recent buys have been carried out under the aegis of the privately held LNM Holdings. The result is that today Ispat International produces about 17,050 mt of steel and the privately held companies produce about 19,150 mt. By comparison, India currently produces about 33 mt of steel annually. India’s largest producer SAIL produces about 9.5 mt. Tata Steel produced 3.94 mt and plans to add another million tons by 2005. Mittal, who has long stopped gauging himself against the Indian steel industry, made the leap into the global top table during the ’90s. Back in 1998 the LNM Group announced its arrival by bidding $1.4 billion for US rust-belt giant Inland Steel. That is still its single biggest acquisition but it is spending giant amounts on plants it has bought recently. It plans to invest a total of around $500 million at Iscor. It’s reckoned that the group invested about $700 million on upgrades at Karmet. There have been deals that have stayed out of reach along the way. A few years ago, the LNM Group was on the verge of clinching a deal to buy Sidor, a Venezuelan plant but found the prize snatched from it at the last moment. More recently, the going has become even tougher. Other steel giants are learning to play Mittal’s game. The main competitor is the U.S. Steel which beat the LNM Group in the race for VSZ in Slovakia. This year, it also beat Mittal to the draw for Sartid, a Serbian plant. Similarly, both U.S. Steel and Accelor, bid for Polskie Huty Stali which seems almost certain now to fall into Mittal’s empire.

n India
Mittal's decision to set up a 5 mn tonne steel production greenfield unit in Jharkhand is an importent decision which heated up the Indian steel industry at large. Mittal's decision to set up a 5 mn steel production greenfield unit in Jharkhand is an important decision which heated up the Indian steel industry. After making big haul in the international steel markets, Mittal, who has so far shied away from acquiring ailing Indian companies, recently said he would consider buying Indian companies and has claimed of receiving many proposals from India. But, critics say that India does not have any sick units which has been the mainstay for entering into a country of LNM Group and hence, there is no possibility of entering into India through acquisitions and mergers route. The only option left with the Group was to set up a greenfield project which, experts believe, the group would not be interested in. Before IISCO, an ailing public sector undertaking under the Ministry of Steel, was announced to be merged with Steel Authority of India, the largest steel producer in the country, the speculation was rife that LN Mittal Group would get an opportunity to acquire IISCO. But, as the UPA government would not be interested in privatizing IISCO with the pressure from the Left and most importantly the steel industry is doing extremely well for quite some time now, there is little chance that the government would be interested in divesting its stake to the private companies.

LNM Group and Arcelor
The LNM Group is racing at lightning speed compared to its lumbering, slow-moving rivals in the world of steel. Arcelor, a 46 million ton (mt) behemoth — formed in 2001 by the merger of three European steel companies — hasn’t moved into takeover mode after its amalgamation. In contrast, the LNM Group has kept up a blistering pace through good times and bad. It currently produces about 70 mt of steel but it’s upping production steeply and constantly scouting for new acquisitions. The group has only aim to reach 100 million ton steel production capacity sooner or later.

Diversification
Although steel manufacturing remains the group’s mainstream business, Mittal has been diversifying into shipping and has ventured into coal, power and oil enterprises in Kazakhstan. The Group bid for the top slot is all the more remarkable because he has — like the rest of the steel industry — just weathered remarkably tough times. Four years ago, as the steel industry slumped into one of the worst recessions in modern times, it was belt-tightening time at the LNM Group. Soon afterwards his efforts to grab a share of the e-business pie also evaporated into cyberspace. He attempted to marry technology and steel by setting up an e-exchange where steel could be traded, but the effort was aborted. His venture capital fund which hoped to strike a gusher in the hi-tech sector also didn’t score any big multi-bagger hits. Nevertheless, in 2003, Mittal triumphantly reached the top. Despite the recession, he bought stakes in four companies in three years and has almost doubled capacity. In the process the LNM Group has moved from 6th position in the industry to the top. It has pulled this off in the face of mounting competition from other industry giants who are now trying to emulate Mittal’s tactics. He now owns — or part owns – more than a dozen of giant-sized mills that are part of a far-flung empire stretching from Canada to Trinidad & Tobago to Kazakhstan and Indonesia. Says Mittal: “There have been a number of interesting opportunities over the past three years, as a result of which we have grown considerably in a relatively short period of time.” As the LNM Group turns around smartly the profits have also poured in. In 2002 on revenues of $8.7 billion the group made net profits of $613 million. Astonishingly, the biggest profits are coming from Mittal’s riskiest and most ambitious buy. The giant Karmet steelworks in Kazakhstan bought in 1995 was reckoned to be a knife-edge gamble when it was bought. Famously, when the LNM Group bought the plant, it also inherited the local branch of the KGB and the steel town’s tram service. Today, production has climbed from 2.2 million tons when the LNM Group took over to 5.2 million tons. Fortune favours the brave and Mittal has had giant-sized slices of luck on the way. The Karmet plant is perfectly positioned to supply the steel-hungry Chinese market, which has developed an insatiable appetite for the commodity (it’s about 400 miles from the Chinese border). Since, Chinese demand is almost the sole factor driving global steel prices upwards, Karmet is in a win-win position.

Leaving no opportunities
Mittal, in the last decade, has never let an opportunity pass. He has voraciously gobbled up steel plants around the world. In the last three years, he has moved from Algeria to South Africa to Romania and the Czech Republic, grabbing nationalized rustbuckets that were being privatised — and which other steelmakers were afraid to touch. In each, he has had an alchemist’s effect. At Ispat Sidex in the Czech Republic, production climbed from 3.04 million tons to 3.65 million tons, a year after it was acquired. Similarly, production has already zoomed at Ispat Nova Hut in the Czech Republic where the deal was closed last year. In 2001, the LNM Group took a 70 per cent stake in Algerian company Ispat Annaba. Similarly, it has a 47 per cent stake in Iscor, a South African steel company.

Roads lead to success
Once LNM takes over a plant — whether in Kazakhstan or in Canada — it flies in a crack team that always includes large numbers of Indian executives. Most have been handpicked from the Steel Authority of India during the last decade.

Awards
Mittal was awarded the Eighth Honorary Willy Korf Steel Vision Award, the highest recognition for world wide achievement in the steel industry. The award was presented by the American Metal Market, a specialised publication, and Paine Weber’s World Steel Dynamics in the New York.