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London Eye: Sanjeev Gupta up against a steel wall

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Sanjeev Gupta is now reported to be considering large-scale sale of his steel plants. His application for a government bailout failed.

London Eye: Sanjeev Gupta up against a steel wall
About 5,000 people are waiting for a reply anxiously, and many thousand more with great interest. The question is, just what Sanjeev Gupta of Liberty Steel is going to do. His financial backer collapsed, he declared he would keep Liberty going with income from his larger group, the GFG Alliance, that has not been forthcoming; he has put up plants for sale, his application for a government bailout failed; the government is instead investigating him on allegations of fraud.
Not a good place to be in, not even for a fighter like Sanjeev Gupta, who came in from nowhere into the steel business to fight his way near enough to the top of the business in Britain.
Gupta had sought a 200-million pound loan to keep production going, and to pay about 5,000 Liberty staff. That loan that had been under negotiation with the San Francisco-based finance company White Oak Global Advisers, seemed the best bet for Liberty to avoid following its financier Greensill into going bust. But White Oak pulled out following revelations that Gupta was being investigated for fraud.
Greensill filed for insolvency protection in April, placing Liberty Steel of Sanjeev Gupta in jeopardy. Gupta sought 170 million pounds by way of a UK government grant to fill the gap created by the Greensill collapse. That was turned down. The government spoke of an “opaque” structure within Liberty and its parent GFG Alliance.
Liberty has since then proceeded in a halting sort of way, with production suspended for periods in order to cut costs. GFG’s UK operations include 11 plants, of which the plant at Stockbridge and then two others have been put up for sale. GFG employs about 5,000 people in Britain, 3,000 of them in Liberty Steel. In a lifeline for Gupta, they see their survival.
New loans are now being negotiated to keep Liberty Steel production going and to pay staff, rather than repayment of Liberty debts. GFG had borrowed about 5 billion dollars from Greensill, including about $750 million for Liberty. But prospects of any significant loan to GFG look bleak.
Separation of the two may not be easy. Gupta’s creditors will want any new money to pay them first rather than to run operations. The Swiss bank Credit Suisse has a claim on Liberty Steel as a result of its own financing provided to Greensill through a network of investment structures. Credit Suisse has launched legal proceedings to recover some of its own money.
Financial Engineering
UK Business Secretary Kwasi Kwarteng has meanwhile spoken critically of “financial engineering” in the Gupta group. An investigation has been ordered to unravel the “opaque” finances at GFG that the government had spoken of while refusing a bailout.
The Serious Fraud Office is investigating the financing structure of the Gupta group beginning with its links with Greensill. “The SFO is investigating suspected fraud, fraudulent trading and money laundering in relation to the financing and conduct of the business of companies within the Gupta Family Group Alliance (GFG), including its financing arrangements with Greensill Capital UK Ltd.,” it said in a statement earlier. “As this is a live investigation, the SFO can provide no further comment.”
Gupta is now reported to be considering large-scale sale of his steel plants beyond the Stockbridge sale announced earlier. His group is said to be considering sale of the plants in France also, with Arcelor Mittal as one of the contenders for buying them up. Liberty had bought the plant at Hayange in France last year following the collapse of its previous operator British Steel. Hayange is a significant production centre for steel rails tracks.
Liberty entered the steel business only in 2009 with the purchase of steel mills in Africa. It stepped into the UK in 2013 after operating for years earlier as a trading company, when it bought a steel mill in Newport in South Wales that had a staff of 150. It began production as Liberty Steel only in October 2015. Soon after, Gupta bought steel plants of the Caparo group that had gone into administration.
In March 2016 Liberty bought two steel plants from Tata Steel that had ceased production. Greensill provided much of the capital for these new ventures that failed to deliver as intended.
— London Eye is a weekly column by CNBC-TV18’s Sanjay Suri, which gives a peek at business-as-unusual from London and around.
Read his other columns here

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