Crisis talks at Gupta’s Liberty Steel to save thousands of jobs

Roughly 5,000 jobs might be at risk in the UK’s metals sector as one of the industry’s biggest players, Liberty Steel, and other companies in the GFG Alliance face financial turmoil. The firm – which operates 12 steel plants in areas including Newport, Hartlepool, Rotherham, and Motherwell – is on the ropes after Greensill Capital – one its key financiers which former PM David Cameron works for as an advisor – filed for insolvency in the UK on Monday.

Liberty is now on the hunt for new backers and is holding crisis talks with the business ministry against the backdrop of a vast and complex financial scandal – with the fate of the company and its employees potentially hanging in the balance.

The Department for Business, Energy, and Industrial Strategy refused to comment on the talks, simply saying: “The Government has put together a far-reaching package of support to help businesses and workers through the coronavirus pandemic. We continue to regularly engage with businesses across all sectors, including those in the steel industry.”

Liberty Steel is one of many companies owned by Sanjeev Gupta as part of his sprawling GFG Alliance which spans metals to banking. In recent years Gupta, who first started trading commodities from his bedroom while a student at Cambridge, has led Liberty on a spree of aggressive deal-making, snapping up steelworks across the UK, Europe, the US, Australia, and India.

For many Liberty Steel seemed like a godsend – stepping in to keep swathes of the UK’s battered steel sector running which steel giants like Tata were pulling out of. However, the GFG Alliance – while not accused of wrongdoing – has also faced criticism over its opaque finances – most notably in an investigation published by the Financial Times in February last year.

One of its key financial backers was Greensill Capital owned by Australian entrepreneur Lex Greensill, a close friend of Gupta who was one of Greensill’s best clients. In 2017, roughly $70 million of Greensill’s $102 million in revenue came from Gupta’s companies. Much of their business also involved a Swiss investment firm, GAM, in a series of complex and opaque financial arrangements. The relationship was rocked by – but survived – a scandal in 2019 and the discovery of a $74 million payment to a non-existent company in 2020.

Greensill has also come under scrutiny for various reasons. In 2016, the firm was on the brink having lost $54 million – more than its entire revenue for that year. Its main business model – supply chain financing – was also looked on suspiciously by some as a way for companies to keep large debts off their books.

Nonetheless, Greensill cultivated a successful profile over the past decade based on this business model, and helped by his formidable skills as a salesman. He forged close links with the British establishment. David Cameron recruited him in 2014 to help cut down on government waste and, after resigning as PM, found a job as an advisor at Greensill. Lex Greensill himself would be awarded a CBE for “services to the economy” in 2017.

When Covid hit, Greensill expanded his business ties with Gupta. Greensill Bank, a subsidiary of Greensill Capital based in Germany, was given permission by the government to administer coronavirus business interruption loans – which the government guaranteed up to 80 per cent – rolling them out to companies hit by lockdowns and the pandemic. Two loans worth tens of millions went to two companies linked to Gupta.

Meanwhile, despite pandemic disruptions, things seemed to be looking up at Liberty. Steel prices – having faced a long slump – were reviving, fuelled by increasing demand from China.

The problems for both companies came on 1 March when Credit Suisse froze $10 billion dollars’ worth of Greensill Capital funds. The move was prompted by a growing number of insurers refusing to extend Greensill’s credit insurance on its loans – partly due to nervousness about its exposure to the GFG Alliance, according to reports in the FT. On the same day the British Business Bank informed Greensill that it was removing the guarantee it had provided for the CBIL loans it made to Gupta’s companies.

The next day, on 2 March, Germany’s financial watchdog, BaFin, made its move, taking over day-to-day operations at Greensill Bank having previously warned the bank about its exposure to GFG. BaFin filed a criminal complaint against the bank’s management the next day. On Monday, Greensill filed for insolvency in the UK.

These developments have left GFG, and its subsidiary, Liberty, scrambling for new sources of credit. Liberty has also been meeting with the UK government and unions to discuss how to protect jobs in its steel plants across the country.

In a statement released yesterday GFG Alliance said, “As part of the prudent steps we are taking to manage cash, we are discussing new opportunities with customers and suppliers to improve cash flow and looking to secure additional working capital facilities to support the business. We also continue to use the furlough scheme to support employees affected by the weakness in the aerospace market. We will continue to work closely with the unions and our employees to identify the most effective ways of supporting the business and preserving jobs.”

It added, “GFG Alliance as a whole is operationally strong and we are benefiting from a thirteen-year high in steel prices as well as strong markets in aluminium and iron ore. While Greensill’s difficulties have created a challenging situation, we have adequate funding for our current needs.”

The company’s actions, however, seemed to indicate serious concern. On 4 March the company simply stopped paying Greensill, according to the FT – having already skipped one payment due on 1 March. Yesterday, Gupta’s metal businesses skipped their UK tax payments.

Further adding to Gupta’s headaches last week, the Bank of England forced Wyeland’s Bank, which he owns, to return millions of pounds in retail deposits after an FT investigation found that Wyeland’s was routing millions to its owners’ businesses via shell companies.

In talks with unions, Gupta apparently admitted that some of Liberty Steel’s UK operations were loss-making and this needed to be addressed. There are also concerns about an aluminium smelter in Fort William whose purchase by another Gupta company, Alvance Aluminium, was supported by the SNP government – which could leave the Scottish government liable for hundreds of millions.

Liberty Steel’s crisis talks with the government continue.