Gupta presented the bold plans as the “savior” of steel. He did not deliver

(Bloomberg) – In 2017, Sanjeev Gupta was the toast of Whyalla in South Australia, having bought out its decades-old steel plant and announced a more than A $ 1 billion ($ 777 million) upgrade .

His GFG alliance even sponsored the town’s Christmas spectacle, with the steel mogul and his family following Santa’s sleigh through the streets on a chariot called the “Gupta Express.” Expectations rose further when Gupta told an audience including Prime Minister Scott Morrison that he planned to build “one of the largest steel plants in the world” in the city.

But so far there isn’t much to show. Last June, Gupta said he was going back to the drawing board and instead “pivoting” to a green, hydrogen-powered steel plant.

This story of planned salvation and blocked delivery was repeated in the Gupta Steel and Aluminum Empire. The industrialist, once dubbed the “savior of steel” by the British press, is now seeking new sources of financing following the collapse this year of its largest lender, Greensill Capital.

Governments now find themselves contemplating aging assets and the prospect of thousands of job losses. While soaring steel and aluminum prices help boost GFG’s business results, Gupta himself admitted that he was “constantly in a fight” to keep his empire afloat and that “some difficult decisions ”might be necessary.

GFG has faced little to no competition for most of the factories it has acquired over the years, said Robin Bhar, an independent metals industry consultant. “The question is will these then be taken over by the state?”

Paul Myners, a member of the House of Lords, said this week that the cost to the UK taxpayer of the Greensill collapse, including ‘having to save the steel industry from its savior Mr Gupta’, could reach 3 to 5 billion. pound sterling.

GFG takes issue with the account that it was over-promised and under-delivered.

Save jobs

The company “made significant long-term investments in steel and aluminum plants that were either closed, closed or previously deprived of investment,” said a spokesperson for GFG. “In doing so, we saved thousands of industrial jobs that otherwise would have been lost.”

In Whyalla, the federal and South Australian governments were prepared to fund a substantial part of the steel mill’s modernization, on condition that Gupta provided the rest of the money, according to people familiar with the matter. This has not happened, the people said, asking not to be identified because this matter is private.

GFG said discussions about Whyalla’s long-term transformation have been delayed while management has focused on operational improvements. An Australian federal government spokesperson declined to comment on the GFG, citing that the group is subject to legal proceedings in Australia. The South Australian government did not respond to requests for comment.

In 2019, Gupta focused on a debt-financed acquisition of seven steel plants from ArcelorMittal SA. This included the purchase of a Soviet-era steel plant in Romania, which Gupta said he plans to become the flagship of GFG’s efforts to be carbon neutral by 2030. In the Czech Republic, he appeased union hostility saying it would replace the old blast furnaces, according to a person familiar with the matter.

Very indebted

The two factories are now heavily in debt, with a combined negative value of $ 1.6 billion, according to a March 2021 GFG presentation seen by Bloomberg.

GFG said improvements to these factories in Eastern Europe were only offered in 2020 and are still making progress.

This playbook – buying unprofitable assets with the plan to upgrade them, before moving on to the next acquisition – was repeated as Gupta expanded his empire.

In 2016, Gupta purchased the Lochaber aluminum smelter and an adjacent hydroelectric power station in the Scottish Highlands. The acquisition was backed by a Scottish government power purchase guarantee, which the metals tycoon securitized through Greensill for cash. The government stepped in to help and Gupta said it would create an additional 1,000 jobs at the site, in part by building the UK’s largest wheel factory.

Three years later, GFG abandoned the plan, citing a slowdown in the auto industry. Only 44 additional jobs have been created at Lochaber, according to Willie Rennie, Member of the Scottish Parliament.

A spokesperson for GFG said it had announced plans for a new recycling facility at the site, which would create 70 new jobs and replace the original plan.

At Gupta’s very first industrial asset in Newport, Wales, the tycoon said he would increase the plant’s capacity to 2 million tonnes, while installing a state-of-the-art electric arc furnace. Five years later, production is in the hundreds of thousands of tonnes and no new furnace has been installed.

Asked about the delay, the GFG spokesperson said the local unit has hired an equipment supplier to develop longer-term development plans at Newport, which will depend on a competitive investment environment.

Last month, GFG asked the UK government for funding of £ 170m ($ 235m), but the request was turned down. Business Secretary Kwasi Kwarteng told a parliamentary committee last week that it would be “very irresponsible” to give taxpayer money to the group.

The collapse of Lex Greensill’s eponymous company in March put pressure on Gupta’s business, which relied heavily on its funding for a multi-year acquisition spree.

Gupta’s empire, which now spans 30 countries and employs 35,000 people, is left with approximately $ 5 billion in debt to Greensill, but few of the upgrades announced.

As GFG seeks new funding, Gupta said in a podcast published on April 16 that “it’s always a struggle at the moment.”

The challenge could, however, be made easier by soaring steel and aluminum prices which will make the group’s assets more attractive to potential buyers, said Christian Georges, senior analyst at Societe Generale SA.

“Even low-quality ones could find a buyer at a low-end price without governments having to step in,” he said. “Some entrepreneurs or financiers can try it.”

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