It would have been a crowning achievement for an industrialist who has forged a global empire from assets no one else wanted.
But just weeks after Sanjeev Gupta failed in a bid to add the vast steel operations of Germany’s Thyssenkrupp to a collection of businesses dotted across four continents and employing 35,000 people, the 49-year-old is under siege.
Gupta admitted this week that the collapse of Greensill Capital, his main lender, had created a “challenging situation” for his companies that span steel, aluminium, renewable energy and a commodities trading business. The Gupta family-owned businesses are grouped together under the GFG Alliance.
Suppliers, unions and politicians from the UK to Australia are sounding the alarm over an industrial powerhouse that began in 2013 when Gupta, then a trader of commodities, acquired a small steel mill in the Welsh town of Newport.
The move saved the plant from permanent closure, setting the pattern for almost a decade of ceaseless dealmaking that won Gupta political support as he saved jobs in industries that had been written off, but drew scepticism over how his businesses were able to keep writing the cheques.
As Gupta races to find new financing, his UK businesses, which employ close to 5,000 people, are among those in the spotlight. Some 3,000 work in steel, under the umbrella of Liberty Steel, and the metals magnate told unions this week that parts of it were unprofitable.
Its operations are spread across the UK, spanning a mill in Scunthorpe, an aluminium technologies car components centre in Coventry to Britain’s last aluminium smelter in Scotland. Its speciality steel business makes high-end products for aerospace manufacturers, including Rolls-Royce. The group also owns an estate in the foothills of Ben Nevis, Britain’s tallest mountain.
Waiting for payment
Concerns are focused on the fate of the group’s speciality steel business which, along with its aerospace customers, is suffering from the sector’s pandemic-induced downturn. Gupta said this week that the business had seen demand for some of its products plunge by 60 per cent. The company said it is in talks with customers and suppliers to improve cash flow and secure additional working capital facilities to “support the [speciality steel] business”.
Rolls-Royce declined to comment in detail but said it was working with Liberty Steel and believed it had a “solution that will expedite the delivery of enough materials to support our supply chain until 2022”.
Production at its Rotherham and Stocksbridge speciality steel plants in Yorkshire is stopping temporarily from Friday, with staff going on furlough, according to two people familiar with the matter.
GFG said: “Some UK businesses will be operating intermittently, which can and will be achieved without compromising the condition of the plants. We are working closely with the trade unions and will be making use of the government furlough scheme for employees where possible in those circumstances.”
Suppliers to Liberty’s UK plants, meanwhile, are watching anxiously. Several scrap metal companies said they had already reduced their exposure to Liberty or stopped supplying the steelworks altogether.
Liberty transforms the recycled metal into finished goods by heating it at up to 1,800 degrees in an electric arc furnace.
A smaller scrap metal dealer, which relies on Liberty for around 10 per cent of its annual turnover, told the Financial Times it is owed more than £500,000 by Gupta’s business. The supplier was told by Liberty representatives on Tuesday not to expect payment until mid-April at the earliest, several months behind schedule.
With any unravelling of GFG likely to hit UK manufacturing hard, Kwasi Kwarteng, the business minister, has held crisis talks with Liberty in recent days. GFG said this week that it is “operationally strong”, had funding for its current needs and that talks to secure new financing are “progressing well”.
The company has hired investment bank PJT Partners and advisory firm Alvarez & Marsal to help it secure new financing, according to two people familiar with the situation.
Politicians on alert
The UK steel business may be in the heart of the storm but politicians from France to the US and Australia are on alert.
After securing the Newport mill, Gupta embarked on a spending spree that included acquiring Europe’s largest aluminium smelter in Dunkirk from Rio Tinto in 2018. The next year, he acquired several European steel plants from rival steel manufacturer ArcelorMittal and made a big push into the US. Today, the group also owns steel mills in Romania and the Czech Republic.
In France, where Liberty Steel snapped up the Ascoval and Hayange steel plants last year, Bruno Le Maire, the French finance minister, said the government was prepared to step in to help employees if needed.
If the UK is one major hub in Gupta’s empire, Australia is another.
With 6,500 jobs at stake, the Australian government is considering how it can protect employment if Gupta’s problems deepen.
“Obviously it is concerning the financial situation the company finds itself in,” said Dan Tehan, Australia’s trade minister. “We will be doing all we can to help and support those jobs.”
Nowhere is the anxiety over the fallout from Greensill’s demise felt more keenly than in the South Australian town of Whyalla, where a GFG-owned steelworks employs almost a tenth of the population. Last week GFG said Whyalla had made a profit for the first time since it was rescued by Gupta in 2017.
But that has not stopped concern over the late payment of some suppliers to the plant, according to Frank Pangallo, a member of the South Australia parliament.
“We know the steelworks are in the black and the company is making a lot of money from the iron ore mines. So why are suppliers still having to beg to be paid on time,” he said.
One supplier to GFG, who did not want to be named for fear it would reduce his chances of being paid, said he was owed more than A$500,000 (£280,000) for work stretching back to November.
John Chapman, South Australia’s small business commissioner, told the FT he was not aware of any substantive issues in recent times. However, last week he wrote to Gupta raising concerns about what the implosion of Greensill would mean for supplier payments.
A GFG spokesman declined to comment on late payment of suppliers in Australia.
Saviour of steel
Dubbed “the saviour of steel” by the press because of his appetite for an industry long beset by too much capacity, Gupta does have one tailwind as he confronts the crisis: a booming metals market.
Steel prices are at their highest level in more than a decade and those for iron ore at a nine-year high, on the back of a robust rebound in Chinese demand.
Bankers in the sector said it is a backdrop that would help generate interest if Gupta does put assets up for sale. One steel trader said among GFG’s Europe assets, its plant in Dunkirk, and the mill in Hayange which produces railway tracks, would be likely to attract bidders. In the UK, the former Caparo steel processing businesses are judged to be among the most attractive. The Scunthorpe mill could also be of interest, bankers said.
Despite the mounting anxiety, unions in the UK said they backed Gupta’s efforts to find alternative funding to shore up his empire. The industrialist, who started his first business while studying at Cambridge university, has said he is used to defying sceptics.
But with lawyers for Greensill telling a London court this week that the finance group has exposure of about $5bn to GFG, this is his greatest test yet.
Additional reporting by Michael Pooler in Sao Paulo
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2021-03-10 18:40:22Z
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