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 workers in the UK and parent company Gupta Family Group (GFG) Alliance has 35,000 employees worldwide, with metallurgical plants and mines in Europe, the United States 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 northern and central England puts 1,500 jobs in limbo and comes after three of GFG’s French auto parts factories filed for bankruptcy on last month.
Clive Royston, who represents the community union at Liberty’s Stocksbridge site in the north of England, said he wanted Liberty to be a “responsible seller” and find a buyer who “doesn’t just take assets away. “.
“We are worried and do not have details. It is difficult because they (the workers) are asking questions and I cannot answer,” he told AFP.
Supply chain finance company Greensill helped GFG’s expansion through short-term business loans and avoided more stringent 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 £ 3.5bn (US $ 5bn) exposure with GFG.
Lawyers for Greensill have said his disappearance could threaten 50,000 jobs worldwide.
Liberty has reportedly failed to repay a £ 18million loan to Metro Bank, which accuses it of breaching “covenants and restrictions”. 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 questioned by the Bank of England in 2019 and liquidated in March amid allegations of favoring Gupta associates.
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.
“This is a red flag. It would take an extraordinarily courageous investor to trust the figures provided by Liberty. This makes risk-taking on 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 into 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 can have a period where businesses are successful for a while and then those problems come back to the surface. Liberty ran into more structural problems,” he said.
“They were way too dependent on Greensill when he sank and left themselves too exposed.”
Bailey believes the UK government should step in with a US-style trusteeship – in which the state runs and reforms businesses before returning them to the private sector – to improve competitiveness and avoid damage to related industries.
“There is a great 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 linked to decarbonization as the sector targets 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.