Mittal gets 613 mn rand payout from South African steel giant

Thursday, 18 December 2003, 08:00 Hrs
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JOHANNESBURG: Billionaire Lakshmi N. Mittal surprised analysts here by opting for a payout of 613 million rands from steel giant Iscor instead of the expected five percent shares that would have given a controlling interest in the firm.

London-based Mittal's LNM Steel entered a business assistance agreement with former state-owned steel producer Iscor two years ago, under which LNM would progressively get more shares in Iscor if it succeeded with cost-reduction plans.

A statement issued here Thursday by Iscor said the company had saved 388 million rands through the agreement with LNM, which was now entitled to receive remuneration.

Analysts said they were not aware LNM could opt for cash rather than shares in Iscor.

But Iscor said the original arrangement for settlement through shares had been agreed to as it was facing "challenging conditions" at the time because of a significant debt burden, losses incurred through technical difficulties and historically low global steel prices.

"Since entering into the (agreement), Iscor's financial position has improved significantly," the statement said.

"Iscor now has adequate cash resources to settle the (agreement) remuneration, being the sum of 613.3 million rands in respect of the second period in cash without prejudicing dividend payments or future growth opportunities.

"Cash settlement will benefit all Iscor shareholders by avoiding both immediate and permanent dilution of earnings."

The statement said both sides had amended the agreement to enable Iscor, "at the election of its board of directors, subject to agreement with LNM, to make payment" of the remuneration either by issuing Iscor shares or payment in cash.

Iscor's board of directors approved the move and LNM agreed to a settlement in cash.

LNM is expected to make savings of 700 million rands over a three-year period, getting 10 percent more Iscor shares if this is successful. It currently holds 47 percent of Iscor.

The current five percent allotment that was converted into cash would have given Mittal control over another major company in his worldwide steel empire.

But analysts here said that ambition might still be fulfilled sooner in another way as Mittal may begin an aggressive hunt for more Iscor shares from minority shareholders with the cash he is to receive.

If LNM had opted to take shares from Iscor, it would only have been able to take a 49.8 percent stake because of a cap on the volume of shares that LNM could acquire annually without having to make an obligatory offer to minorities.

"However, by taking cash, LNM is getting a larger, immediate payment from Iscor, which would translate into a rise from their current 47 percent shareholding to around 57 percent of Iscor - if the cash could be converted smoothly into shares at the recent average trading price," an analyst told the Business Day daily here.

"The likelihood is that Mittal does want to boost his holding in Iscor, and therefore he is expected to start buying, and may have already been negotiating a deal with one or other institutional investor, with Old Mutual being an obvious target."

Multinational insurance giant Old Mutual had previously resisted selling to Mittal last year as he attempted to consolidate his stake in Iscor when he was forced to make an offer to minorities after getting a 35 percent stake.

Another analyst told Business Day that Mittal might have opted for cash rather than shares in anticipation of poor results for the six months to December, which might have hurt Iscor's share price.

"In such a case, LNM would be able to scoop up Iscor shares at a lower price than it would have received through the (agreement)."

Source: IANS
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