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Sanjay Suri
London, Sept 18: Share prices of Laxmi Mittal's company Ispat International have nosedived in recent days. The collapse of the share prices comes as the first major blow to the Indian-born industrialist who has rapidly expanded his steel business around the world to become the richest Indian businessman abroad.
The share price of Ispat, which was offered at $27 a share when the company went public on August 7 last year, peaked at $30.25 but has now collapsed to only nine dollars a share -- a third of what they started with a year ago.
The steep fall in the share value began in May. A company release issued on August 5 claiming significant successes in the second quarter of the year failed to halt the slide. Share prices nosedived more dramatically following Ispat's claims of successes after steadying briefly in July. The company declared a dividend of 15 cent per share on its 1997 earnings on July 31.
The company's records for 1997 show a revenue of $2.19 billion for Ispat, with a net income of $289million on a net profit margin of 13.2 per cent.
The market value of Ispat has now dropped to $1,182.7 billion. The shareholders affected include large numbers of Indians in Britain and the US. Collectively, the biggest blow falls on 97 institutional holders who own a quarter of the shares between them.
Santander Investment Securities, an investment company, has advised investors against buying shares in Imexsa, Mittal's firm in Mexico. The company has recommended investment only in the company's 2001 Eurobond, which carries a guarantee. Mittal's operating profit dropped from 30.4 per cent in 1995 to 13.2 per cent in 1997. That drop, however, was not worrisome because of simultaneous investments, according to market sources. But through August and September, the share prices have been dropping every day.
``What is really worrying is that steel companies are becoming bad news on the market,'' an investment fund manager told IANS. Fresh supply of large amounts of steel from countries such as Brazil,Russia and China has cut into steel profits. With new technology, it is now being beaten at its own game, according to market sources.
The firm Nucor, for instance, has begun to produce steel from scrap iron as Ispat does, and also cut operating costs. As more companies do this, the early successes of the Mittal group is being limited by new competition, the sources said. With steel itself in difficulty, investment managers do not see share prices picking up in the foreseeable future. Some of the world's largest producers like Usinor of France and Thyssen of Germany have seen share prices drop 30 to 40 per cent -- a steep fall but not quite so severe as the 300 per cent decline in the value of shares in the Mittal company.
As share prices collapsed and demand for steel from established companies declined, Ispat went ahead with a $1.4 billion deal to buy the U.S. steel firm, Inland Steel based in Indiana. Ispat is increasing productivity while market reports indicate a decline in demand.
A spokeswomanfor Ispat told IANS there were two reasons for the decline in share prices: one, the influx of steel from Asia and Russia into the market in Europe and the US, and secondly the turmoil in the share market. Ispat share prices, however, do not reflect market buffeting, but a sharp and continuing fall.
The company shares have fallen sharply in value in relation to the Nasdaq average. Nasdaq (National Association of Securities Dealers Atomated Quotations) is a computerised price information system used in the over-the-counter market in the US. Ispat had claimed several successes in its release on August 5 of results for the second quarter of the year. Its shipments of steel rose 30 per cent over the same quarter in the previous year, its net sales were up 33 per cent and its operating income was up 72 per cent. The adjusted net income rose to $50 million from $46 million.
The year does not promise to end, however, as it began. The company raised $1.1 billion debt for the acquisition of Inland Steel in theU.S. But if this steel is outbid in prices of new imports in a market where demand is declining, investment managers believe Laxmi Mittal's company can face hard days ahead.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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