With the steel industry shrouded in doom and gloom, Arcelor Mittal chairman Lakshmi Mittal may have to make major adjustments in his steel empire this year, say industry watchers.
Arcelor Mittal is the world's largest steel producing company and it has several plants in Western Europe, Eastern Europe, including Poland where it controls 70 per cent of steel production, South Africa and Brazil.
The ongoing recession has hit London-based Mittal - Britain's richest man and one of its most flamboyant families - in a big way and his assets have plummetted to 17 billion pounds from 65 billion pounds in less than six months. Now the balance-sheet of his company is facing many hurdles including huge debts which are on the rise each and every passing day.
According to a report published in Polish Monthly, the net debt is around 19 billion pounds and he has to raise four billion pounds to meet the expenses.
At the moment Mittal is putting up a brave face and is trying his best to convince his shareholders that he will manage the difficult times with his managerial skills. He is relying on a pick-up in prices to boost operating profits.
But, according to a JP Morgan's analysis released earlier this month, the demand for steel will go down further this year by 20 percent. The steel prices are likely to fall in the coming months of this year.
Should the slide in market conditions continue, Mittal will have to raise several billion pounds in order to remain afloat in the steel market before the end of 2009, says one industry watcher who prefers to remain unidentified.
One doomsday scenario being talked about is that he will have to sell part of his crown jewels in order to save his empire. The one possible buyer in these difficult days will be a state-owned Chinese steel company which can be his strategic partner. China, which is sitting atop a two trillion dollar foreign exchange reserve, is very keen to play an international role in controlling steel production in the coming decade.
At the moment, there is hardly any western customer who is willing to burn his fingers in investing in the steel industry.
"The prospective customer can come only from East Asia. The economic situation in the euro zone is not improving at all. Most of the East European economies are in doldrums, particularly Hungary, Bulgaria and Romania. All these countries have got a massive economic bailout both from European Commission and the International Monetary Fund (IMF)," JJ Singh, president of Polish India Chamber of Commerce and Industry, told IANS.
"Even in Poland the economic outlook looks quite bleak and Mittal has already cut down production drastically in his steel plants here," Singh pointed out.
Another potential option for Mittal, say analysts, is to go to the market and raise three billion pounds through a rights issue. How many people will opt for him in these recessionary times, remains to be seen.