LONDON: Sanjeev Gupta’s Liberty Steel company – one of the world’s largest steel empires – faces an uncertain future after announcing plans to sell three of its UK factories. Liberty employs 3,000 people in the UK and parent company Gupta Family Group (GFG) Alliance has 35,000 employees worldwide, with metal plants and mines in Europe, the US and Australia. Gupta was once considered the savior of the British steel industry, but is now fighting for its survival after the collapse of its main lender Greensill Capital and allegations of fraud.
The Indo-British billionaire has insisted that none of his 12 UK sites will close. Yet this week’s decision to sell three factories in north and central England puts 1,500 jobs in limbo, and comes after three French GFG auto parts factories filed for bankruptcy protection last month. . Clive Royston, who represents the community union at Liberty’s site in Stocksbridge, northern England, said he wanted Liberty to be a “responsible seller” and find a buyer who “won’t just strip its assets ”. “We are worried and have no details. It’s difficult because they (the workers) ask questions and I can’t answer, ”he said.
Supply chain finance company Greensill helped GFG expand through short-term business loans and avoided the tighter regulations imposed on traditional banks. But its abrupt collapse in March sparked a liquidity crunch at GFG as creditors sought to recall their loans. It was reported that Greensill had 3.5 billion pounds ($ 5 billion, 4.1 billion euros) exposure with GFG.
Lawyers for Greensill have said his disappearance could threaten 50,000 jobs worldwide. Liberty has reportedly failed to repay an £ 18million loan to Metro Bank, which accuses it of violating “covenants and covenants”. Liberty denies the allegations. Negotiations with Swiss banking giant Credit Suisse, which had 10 billion euros of exposure with Greensill, are continuing. The UK government has rejected Liberty’s request for a £ 170million bailout over concerns over the company’s opaque structure and governance.
The risky nature of supporting struggling companies means investors either make huge profits or lose their entire investment, said Dirk Jenter, of the London School of Economics and Political Science. As backing companies may be the best way for investors to recoup their loans, “they (Liberty) are looking for money and trying to sell their most liquid assets. It’s an attempt to buy time to keep the business alive, ”he added.
Gupta was the majority owner of the indebted Wyelands Bank, which was surveyed by the Bank of England in 2019 and was liquidated in March on allegations of favoring Gupta partners. This month, the UK’s Serious Fraud Office opened an investigation against GFG for alleged fraud, fraudulent transactions and money laundering, including its fundraising activities with Greensill.
Jenter said this investigation and the allegations of providing false invoices would deter potential investors and exacerbate Liberty’s financial problems. “It’s a red flag. It would take an extremely courageous investor to trust the figures provided by Liberty. This makes the risk of equity almost impossible, ”he told AFP.
“ A fundamental industry ”
Union representative Royston said the coronavirus had ‘crippled’ Stocksbridge, which supplies the hard-hit aerospace industry, and stressed the need to protect the jobs that have defined the region despite several ownership changes over the years. “There isn’t a lot of industry around us. Stocksbridge was built around the factory. As a boy, you follow your father to the steelworks, ”he added.
David Bailey, of the University of Birmingham Business School, said all UK steelmakers face broader challenges, including higher electricity prices and trade tariffs. A long-standing glut in the global steel market and Chinese dumping have also undermined UK steelmakers. “You might have a period where businesses are successful for a while, and then these issues come up again. Liberty encountered more structural problems, ”he said.
“They were way too addicted to Greensill when he broke down and left himself too exposed.” Bailey believes the UK government should step in with a US-style trusteeship – whereby the state runs and reforms businesses before returning them to the private sector – to improve competitiveness and avoid harming related industries.
“There is a big threat to jobs and it is a fundamental industry. We should do more to preserve it, ”he said. UK Business Secretary Kwasi Kwarteng recently told lawmakers that nationalization was “unlikely”. Government support for steelmakers is tied to decarbonization, with the industry pursuing an 80% reduction in carbon emissions by 2035. Liberty is committed to achieving carbon neutrality by 2030 by using more scrap and electric arc furnaces powered by renewable energy sources. – AFP