London-based steel tycoon Lakshmi Mittal stepped
into the limelight twice last week. The first time, he
was recognized as the richest Asian and the
fourth-wealthiest person in Britain by "The Rich Report
2004", published by The Mail last Monday, which
estimated his wealth at US$5.7 billion. A few days
later, the 53-year-old chairman of LNM Group, the
world's most global steel producer, declared he was
ready to do business in India, the country of his
origin.
Of the two announcements, it was the
second that created ripples in India. Over the past few
years, Mittal has been a regular on Richie Rich lists
compiled by leading publications. His neighbors on
Bishop's Avenue, in London's Hampstead Garden suburb,
include the Sultan of Brunei and King Fahd of Saudi
Arabia. But the world's second-largest steel producer
has consciously stayed away from investing in India,
despite his regular visits - he often flies there in his
private jet and last month threw a grand party in Mumbai
as part of his daughter's wedding celebrations.
So now, the man who singlehandedly produces more
steel than the entire country of India is clear about
why he is coming back home. Economic reforms launched by
the Indian government are finally working, he feels; the
overall climate is much more conducive to doing
business. Although Mittal has so far not revealed where
his first Indian steel plant will be located, it is
reliably learned that his team is in the midst of some
serious exploratory visits, and a formal announcement
will follow soon.
Mittal is a perfect example of
Indian businessmen, frustrated by red-tapism in their
home country, seeking their fortunes abroad - and
succeeding. Others like him include
information-technology (IT) entrepreneurs in the United
States' Silicon Valley, trading giants in the Middle
East, and real-estate barons in Africa. In Britain,
other Indians who have made it big are industrialist
Lord Swaraj Paul, beer brewer Karan Billimoria, fashion
baron Tom Singh, and online-travel-agency chief Dinesh
Dhamija.
For Mittal, it all began in 1976 when
he borrowed money from his steelmaking father in India
to start a scrap-melting steel mill in Indonesia. Mittal
hails from the Indian desert state of Rajasthan, where
scarce natural resources have made frugality second
nature in its sons. Thus, as soon as Mittal started
operations in Indonesia, he started scouting for a
substitute for the expensive scrap he was importing.
He was able to deflate his raw-material bill by
50 percent by buying direct-reduced iron (DRI) from a
state-owned steel mill in Trinidad. The operation in
Trinidad was poorly managed and was losing $80 million a
year, but Mittal negotiated a contract to run the mill,
with an option to buy later. Within a year the mill was
in the black, and in 1994 he exercised his option to
buy. Since then, he has bought underperforming
government-owned operations all around the world,
including in Mexico, Canada, Belgium, Germany and
Ireland.
Today, the LNM Group employs 130,000
people and is the only steelmaker with operations on
four continents. The acquisition of the North American
Inland Steel company in 1998 increased the group's
capacity by almost a third and gave it an important
presence in the world's largest domestic steel market.
Thanks to some aggressive deal-making, Mittal has
expanded his production by 50 percent in the past four
years and has successfully positioned himself as a
low-cost producer of high-quality steel. In all, LNM has
completed 12 acquisitions and has a unique reputation
for implementing the successful turnaround of newly
acquired assets.
LNM has a high degree of
product and geographic diversification as well.
Companies within the group produce a broad range of
finished and semi-finished products for the flat and
long product markets, employing both the mini-mill and
integrated routes to steelmaking. The group supplies
steel to more than 5,000 customers in 120 countries in
the automotive, appliance, engineering and other
sectors.
At the core of the group's management
philosophy is the sharing of knowledge and expertise
through the global Knowledge Integration Program,
encompassing all functions, key to building a superior
competitive advantage and maximizing performance -
especially in a global marketplace.
Just 2
million tonnes of steel separate Lakshmi Mittal from
holding the title "King of Steel". The LNM Group
produces 44 million tonnes of steel each year (compared
with India's 30 million tonnes), while Accelor, based in
Luxembourg, currently holds the spot at No 1, producing
46 million tonnes of steel a year. However, while
Accelor and has been around for a long time - it was
formed after the amalgamation of three European
companies - Mittal's far-flung empire has been set up in
just less than four decades. Mittal has related
interests in iron and coal mines to control raw-material
costs, as well as four 65,000-ton cargo ships to reduce
delivery charges. He also controls Kent Wire, a British
steel-mesh producer.
And with his recent
acquisition of Polskie Huty Stali, a run-down
communist-era steel conglomerate in Poland, Mittal is
close to claiming the title of king. Behind his quick
ascent is one fact even competitors readily acknowledge:
Mittal is one of the smartest steel players on a global
scale. Last year, on revenues of $8.7 billion, the LNM
Group made net profits of $613 million. Mittal is a
master deal-maker and has an uncanny sense of taking
over sick mills and turning them around.
Consider his ambitious acquisition of the giant
Karmet steelworks in Kazakhstan. When he bought the mill
in 1995, the steel trade considered the deal a risky
proposition. The plant was owned by the state and was
making losses. Production was falling, morale was low
and the workers hadn't been paid for six months. As part
of the deal, Mittal also inherited other heavy
industrial operations, including the local power plant,
the steel town's tram service, its television station
and its coal mines with their 27,000 miners. After
purchasing the mill, Mittal sent in 45 trusted managers
and specialists, mostly Indians with modest lifestyles,
high skills and strong loyalty, to turn the plant
around.
From its original market base in the
Commonwealth of Independent States and Russia, the
Karmet plant has expanded its markets and now exports 95
percent of its production to 65 countries. This is
unusual for the steel industry, which generally sells to
domestic and niche markets. Since its takeover, the LNM
Group has succeeded in increasing production at the
Karmet plant from 2.2 million to 5.2 million tonnes.
Mittal correctly calculated that the Karmet plant, just
400 kilometers from the Chinese border, would be
perfectly placed to feed the steel-hungry Chinese
market.
Now Mittal is at it again, having
submitted an offer for the privatization of selected
production assets at Huta Czestochowa, Poland's leading
producer of steel plate, which employs more than 2,000
employees and has steelmaking capacity in excess of 700
billion tonnes. In addition, LNM has expressed interest
in shares of another Polish company, Huta Stali
Zcestochowa.
Thus the steelmaker hopes to build
on its existing presence in Poland and Central and
Eastern Europe. He also has his eyes on China, where he
is planning a $100 million steel unit. The 400,000-tonne
cold-rolled and galvanizing unit will be located at
Yingkou in Liaoning province, south of northeastern
China. LNM already has a presence in China through three
sales offices in Beijing, Guangzhou and Urumqi.
That Mittal's decision to base his business
abroad played a crucial role in his success is evident
from the declining fortunes in India of his father and
brothers, who run the steel-manufacturing Ispat Group,
which has Ispat Industries as its flagship company. The
company produces sponge iron, hot-rolled coils,
galvanized sheets and products and cold-rolled coils at
two plants in the western Indian state of Maharashtra. A
number of factors, including poor business decisions
such as diversification into unrelated activities like
power generation and real estate, gradually caused the
Ispat halo to fade away.
Once the pride of
Indian industry, Ispat Industries had its best year in
1995 when it reported a net profit of Rs1 billion ($22.1
million). But things have been on the downslide ever
since, with net profit plummeting to Rs600 million in
1997 and Rs31 million in 1999. The company slipped into
the red the following year with a net loss of Rs3
billion. Its stock (with a face value of Rs10) currently
is quoting below par at Rs8 even as those of competitors
Tata Steel and Jindal Steel are flying high at Rs434 and
Rs227, respectively.
Ispat Industries also holds
the dubious distinction of being the biggest defaulter
to the state-run Maharashtra State Electricity Board
(MSEB), with dues of more than Rs1.5 billion. Now,
adding to its woes, the Indian government recently
ordered a probe against Ispat Industries for its alleged
exposure to Rs85 billion of public funds, erosion of net
worth and high accumulated losses. The company has debts
of about Rs60 billion on its books. For the nine months
ended December 31, 2003, Ispat Industries made a
negligible net profit of Rs170 million on a sales
turnover of Rs40 billion.
So what has kept
Mittal from following the path of his father and
brothers? In other words, what is the secret of his
success? "Our group has experienced significant growth
primarily as a result of strategic acquisitions of
underperforming assets and initiatives undertaken to
improve operating performance of the acquired
steelmaking facilities," he told Indian press recently
via a teleconferencing session organized by his company.
"We are one of the lowest-cost producers because of our
use of the integrated mini-mill process, modern
facilities, access to low-cost material and operating
efficiencies."
According to his 10-year vision,
unveiled by the corporate communications department at
LNM Group, Mittal predicts that China will continue to
be the world's leading steel producer and consumer, and
it will be a significant exporter.
He also
foresees further consolidation in the steel sector:
"Within 10 years we are likely to see a handful of truly
global players accounting for 80 [million] to 100
million tonnes each, and with a footprint in all the
major regions. These large, global players will
selectively invest in their upstream facilities to
optimize costs, transferring some semi-finished product
across regional boundaries."
No points for
guessing who will be among the front runners in this
pack of global players.
(Copyright 2004 Asia
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Mar 19, 2004
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