London, United Kingdom: After announcing plans to sell three of its UK mills, Sanjeev Gupta’s Liberty Steel, one of the world’s largest steel conglomerates, faces an unclear future.
Liberty employs 3,000 people in the United Kingdom, while its parent business, Gupta Family Group (GFG) Alliance, employs 35,000 people worldwide, with metalworks and mines throughout Europe, the United States, and Australia.
Gupta was once hailed as the savior of British steelmaking, but the company is now struggling to stay afloat following the bankruptcy of its key lender Greensill Capital and suspicions of fraud.
None of the Indian-British billionaire’s 12 UK locations will close, he has stated.
However, GFG’s decision to sell three operations in northern and central England this week puts 1,500 jobs in jeopardy and comes after three of the company’s French car parts companies filed for bankruptcy last month.
Clive Royston, a member of the Community trade union at Liberty’s Stocksbridge plant in northern England, said he wants Liberty to be a “responsible seller” and find a buyer who will not just strip assets away.”
“We’re worried and don’t have any details. It’s hard because they (workers) are asking questions and I can’t answer,” he told AFP.
Crisis of liquidity
Greensill, a supply chain financing provider, helped GFG expand by providing short-term corporate loans while avoiding the tougher requirements placed on regular banks.
However, its sudden demise in March sparked a liquidity problem at GFG as creditors attempted to reclaim their loans.
Greensill has £3.5 billion ($5 billion, 4.1 billion euros) in GFG exposure, according to reports.
Greensill’s lawyers stated that the company’s demise might result in the loss of 50,000 jobs worldwide.
Liberty is said to have defaulted on an £18 million loan to Metro Bank, which accuses the company of violating “covenants and restrictions.” The claims are refuted by Liberty.
#UPDATE British-based steelmaker #LibertySteel on Monday launched a major restructuring to sell part of its UK assets following the collapse of financier #Greensill https://t.co/CTk8JSXNbj pic.twitter.com/NJA7jvS0TB
— AFP News Agency (@AFP) May 24, 2021
Negotiations with Credit Suisse, a Swiss banking powerhouse with a 10-billion-euro exposure to Greensill, are still ongoing.
Liberty’s proposal for a £170 million bailout was turned down by the UK government due to concerns about the company’s opaque corporate structure and governance.
According to Dirk Jenter of the London School of Economics and Political Science, the risky nature of financing troubled enterprises means investors either make big gains or lose their entire investment.
Sustaining businesses may be the best method for investors to reclaim their debts “They (Liberty) are in desperate need of cash and are attempting to sell their most liquid assets. It’s an attempt to purchase time in order to keep the business afloat “Added he.
Gupta owned the majority of the insolvent Wyelands Bank, which was investigated by the Bank of England in 2019 and closed in March amid claims of favoring Gupta’s allies.
GFG is being investigated by the UK’s Serious Fraud Office for alleged fraud, fraudulent trade, and money laundering, particularly its funding activities with Greensill.
The probe and charges of issuing forged bills, according to Jenter, will dissuade potential investors and exacerbate Liberty’s financial troubles.
“It’s a red flag. It would take an extraordinarily courageous investor to rely on the numbers provided by Liberty. It makes risking equity almost impossible,” he told AFP.
‘A foundational industry’
Coronavirus “crippled” Stocksbridge, which feeds the hard-hit aerospace sector, according to union leader Royston, who highlighted the need of preserving jobs that have distinguished the community despite multiple ownership changes over the years.
“There’s not much industry around us. Stocksbridge has been built around the plant. As a lad, you follow your father into the steelworks,” he added.
All British steelmakers, according to David Bailey of the University of Birmingham’s business school, confront bigger issues, such as increasing electricity prices and business rates.
British steelmakers have also been hurt by a long-running global steel surplus and Chinese dumping.
“You might have a period where companies are successful for a while, then these problems raise their heads again. Liberty ran into issues that are more structural,” he said.
“They were far too reliant on Greensill when it went under and left themselves too exposed.”
To increase competitiveness and prevent damage to linked businesses, Bailey believes the British government should interfere with an American-style conservatorship, in which the government oversees and transforms enterprises before returning them to the private sector.
“There’s a big threat to jobs and this is a foundational industry. We should be doing more to preserve it,” he said.
Nationalization, according to UK business minister Kwasi Kwarteng, is “unlikely.”
Steelmakers’ government funding is tied to decarbonization, with the industry aiming for an 80 percent decrease in carbon emissions by 2035.
By employing more scrap metal and electric arc furnaces driven by renewable energy sources, Liberty has pledged to become carbon neutral by 2030.
COVER IMAGE COURTESY OF LIBERTY STEEL GROUP