Mittal Steel SA shares rise despite legal wrangles
Shares continued to rise despite the company facing a tribunal hearing and Govt intervention on scrapping import duties on steel.india Updated: Apr 20, 2006 18:44 IST
Share prices of Mittal Steel South Africa, part of London-based magnate Lakshmi Mittal's LNM Group, continued to rise despite the company facing a tribunal hearing and government intervention on scrapping import duties on steel.
Analysts were surprised that investors continued to snap up Mittal shares despite the company having made out a case at the tribunal that the global steel industry was facing gloom.
The tribunal hearing resulted from complaints to the Competition Commission by several buyers of steel and two gold mining companies, Harmony and Durban Roodepoort Deep, about Mittal's' parity pricing policy.
The aggrieved companies said Mittal sold steel to them at prices determined by including costs such as freight and other charges that would have been incurred if the product were imported.
Several witnesses have been appearing before the commission in the past fortnight for both sides, with one of the more surprising ones effectively pleading poverty for Mittal, who took over Iscor, the state-owned manufacturer, two years ago.
Mittal accountant Rudolph Torlage, supported by an independent accountant, Mike Walker, tabled reports that aimed to show how the company's return on equity was below its weighted average cost of capital, alleging that this could not be sustained indefinitely and could lead to bankruptcy.
But the complainants produced a leading accounting academic from Wits University, Harvey Weiner, to disprove this claim.
Weiner questioned why, if the company was on the verge of unprofitability, it had a "densely traded stock with sustained investor interest".
"If this is a true reflection of the situation, then Mittal should have issued an announcement on the (Johannesburg) Stock Exchange News Service because it is going out of business," Weiner told the tribunal.
A former director-general in the ministry of trade of industries, Zavareh Rustomjee, now an independent consultant, told the tribunal that Mittal Steel and its predecessor, Iscor, had been privileged by many years of government support measures but these benefits had not been passed on to users lower down in the manufacturing chain.
Rustomjee said one of the challenges facing the South African government was to see that these sectors also benefited from the initiatives which had made South Africa a supplier of primary materials of world class quality.
Deadlocked negotiations between Mittal and the government over the past 18 months were set to continue despite the government announcing last week the scrapping of the five percent import tariff on steel.
Mittal spokesman Tami Didiza said the removal of the duty would not have any significant impact on its markets or performance, citing that it had already dropped the import parity pricing model.
The tribunal hearings are expected to continue after the Easter holiday recess.