Mittal to face censure over debt repayments

Lakshmi Mittal's Mexican steel company is about to get an official credit warning for failing to pay back millions of pounds on time.

Standard & Poor's, an American credit rating agency, is poised to say that Mr Mittal's Mexican subsidiary has "defaulted" on the servicing of outstanding bonds. The disclosure has prompted fresh questions from the Tories about the wisdom of Tony Blair in recommending Mr Mittal to the Romanian Prime Minister for his purchase of the Sidex steel plant.

"We expect the government to do its homework on the financial situation of Mr Mittal before recommending him," said Caroline Spelman, the trade and industry spokeswoman. "Why did number 10 fail to take freely available advice from market analysts about this? It looks like another misjudgement from Tony Blair."

Standard & Poor's is preparing to award a "D" credit rating to Ispat Mexicana – an official "default" notice that was also awarded to Enron after the scandal of its finances emerged – unless it cancels plans to "freeze" his repayment obligations.

The credit rating downgrade could have a knock-on effect across Mr Mittal's business empire and will serve as an official warning to investors in the company they may not get their money back on time.

It will also lead to Mr Mittal's parent company, Ispat International, getting an SD (selective default) rating, meaning that – although it is likely to honour its obligations on other matters – part of the empire has failed to pay back money it owes.The credit warning is a result of Mr Mittal's decision to tell institutional backers that he will not meet his promised schedule of repayments until 2005.

As early as January this year, Standard & Poor's warned the Mexican company's plan "to seek a moratorium on all capital repayments" would be regarded as "a coercive offer" that would put undue pressure on his institutional investors to agree to his terms.

A briefing note prepared by analysts warned: "Standard and Poor's would view the implementation of such a moratorium as a default on the SEN's, because bondholders would have no alternative but to accept this coercive offer. Upon completion of the exchange, Ispat Mexicana's corporate credit rating would be lowered to 'D'."

The credit rating could rise again if plans to restructure the debt prove successful in Mexico. But if it fails to reach agreement with creditors, companies across Mr Mittal's empire could see investment ratings "lowered significantly."

Mr Mittal's spokeswoman confirmed yesterday the company was pressing ahead with negotiations in Mexico to delay repayment of the money to its backers. The company was anticipating the default rating but did not accept that the company had defaulted on its loans.

* The Government faced a fresh "cronyism" row last night for appointing a Labour- supporting businessman to lead its Better Regulation Task Force. David Arculus, the non-executive chairman of Severn Trent Water, will replace Lord Haskins in the unpaid post from 1 April this year.