Entitled as Britain’s “saviour of steel,” Sanjeev Gupta was celebrating in Romania for the acquisition of seven steelworks in mainland Europe by his Liberty House group. The deal capped off a dazzling run of acquisitions that has transformed his family’s business empire - GFG Alliance, from an obscure commodities trading outfit into an industrial powerhouse with $20bn in annual turnover in less than five years. Hailed as a rescuer of jobs and smokestack industries from Scotland to Australia, GFG is claimed to be the fifth-largest private landowner in the UK.
But last week’s celebrations of the group’s biggest deal were overshadowed by its struggles in achieving another milestone - the first high-yield bond by one of its companies. In what turned out to be a disastrous debut in the debt capital markets, Gupta was forced to invest $150m of his own pocket to save the deal for InfraBuild, an Australian steel manufacturer and re-cycler. Even after InfraBuild scaled back the bond by one-third to $325m, sceptical investors still charged the company an eye-watering 12 per cent interest rate.
Gupta, 48, has long faced questions about the sustainability of GFG’s funding model. The Indian-born businessman was grilled live on air about the troubled bond sale and how Liberty had paid for the European steel plants. “From our own equity and a little bit of debt,” Gupta replied, as GFG and Liberty flags flapped in the breeze behind him.
According to the Public filings, Liberty signed a new €2.2bn debt facility to fund the purchase of the steelworks from ArcelorMittal, which together employ 14,000 people which made Liberty the continent’s third largest producer of the metal. The facility is backed by the businesses’ receivables - amounts owed to them from customers - and is three times the €740m price Gupta paid for the assets. GFG Alliance declined to publicly comment on whether the facility had been fully drawn. Filings show this debt could rack-up a total interest bill of €660m.
The scale of the borrowing, which has not been previously reported, shows that despite efforts to raise more conventional forms of funding, Gupta’s business empire is still heavily reliant on opaque and unconventional financing linked to working capital and supply chains that can be expensive. Despite some of these financing techniques do not have to be reported in a company’s debt figures, they still place a financial burden on the business involved.
Financial cracks have begun to emerge in some corners of GFG’s empire. The group breached several terms of a $350m loan that financed its acquisition of Europe’s largest aluminium smelter last year, said people close with the matter. While the Dunkirk facility has not missed any scheduled payments, some of these breaches relate to issues like delayed filing of audited accounts for the smelter business.
Wyelands Bank, a UK high-street lender owned by Gupta, also provided $34m of inventory financing towards the Dunkirk aluminium deal. Wyelands has attracted scrutiny for its financing of the entrepreneur’s wider business empire, with City grandee Lord Myners raising a question in parliament about the bank in July.
Wyelands declined to comment on the financing, citing client confidentiality.
GFG held discussions with US investment bank Jefferies about raising a conventional bond to finance its acquisition of the European steelwork from ArcelorMittal, according to people familiar with the matter. But in the end, the group turned to an Australian financier whose meteoric rise has been closely intertwined with the Indian-born businessman.
Lex Greensill, a confidant of former UK prime minister David Cameron, has masterminded much of GFG’s complex funding — including the ArcelorMittal deal. His eponymous company Greensill Capital, which is backed by the Japanese technology conglomerate SoftBank’s Vision Fund, acts as a middleman specialising in working capital finance.