Bloomberg
Sanjeev Gupta’s trophy deal shows how he has built a shaky empire on debt
(Bloomberg) – In early 2019, industrialist Sanjeev Gupta sought to win its biggest ever prize: a deal to buy a range of steel mills across Europe from ArcelorMittal SA. There was only one problem: he was struggling to find the money. The European Commission insisted that he invest more of his own money – and take on less debt – before approving the purchase. For Gupta, as on so many previous occasions, the answer came as a creative solution from financier Lex Greensill. Greensill’s company provided hundreds of millions of dollars in credit to Gupta’s businesses based on the inventories of its Australian assets. Problem solved, a few months later the deal was closed with ArcelorMittal. The story of Gupta’s acquisition of ArcelorMittal’s assets illustrates how the British-Indian entrepreneur built his empire by shifting money from one part of his business to another. The reporting, based on business filings in Australia, Singapore and the UK, and interviews with two people with direct knowledge of the deal, suggests that his ascent relied on closing one deal after another, generating new funding at every stage. collected and so debts were piled up. on top of debt – a lot from Greensill. Now that his biggest lender is bankrupt, Gupta faces a settlement. Without access to more Greensill funding, and with its ability to keep closing deals, what will happen to the so-called “savior of steel”? ToolsGFG’s series of financing deals reflected its strategy to improve the operational and commercial performance of the assets, which represented a “series of countercyclical investments,” a spokesman said in response to questions. “We have used a range of financing instruments, including bonds, bank loans and asset-based financing, to finance the business. We have significantly improved the performance of our core businesses and are benefiting from strong steel, iron ore and aluminum markets.” Greensill spokespersons and ArcelorMittal declined to comment. In July 2019, Gupta was triumphant. He declared himself “extremely proud” and announced that he was the new owner of seven steel mills in Romania, the Czech Republic and four other European countries. Behind the scenes, Gupta had workers have been begging employees for months to find money for the deal, one said. It’s not uncommon for buyers to borrow to finance their deals. But usually they inject a minimal portion of their own money – or equity – to reduce the risk. to absorb that their lenders take in case the asset’s value would fall. ”After Gupta raised the extra money, Brussels, which was involved because the ArcelorMittal assets were sold to meet a demand from the European Commission, declared itself satisfied with Liberty as the buyer. In its assessment, the Commission noted that while Liberty’s original proposal had “raised concerns” because it “would have been” exploited to a great extent “, in the final version of the deal the equity contribution had been increased and represented 30% to 40%. % of the purchase price, but in reality that contribution was only due to another debt, people said: Greensill’s loan against Gupta’s Australian assets. An application from Liberty OneSteel (Primary) UK Ltd., a holding company for the assets, shows that an A $ 1 billion facility was agreed against Australian inventories at the end of February 2019. At the end of June 2019, A $ 280 million had been drawn from it, another filing was on display. Another Australian entity owned by Gupta, Liberty Infrabuild Ltd., borrowed A $ 233 million, also against inventories, the accounts show. Based on the exchange rates at the time, those two amounted to approximately $ 360 million. – Liberty Primary Steel & Mining Pte Ltd., registered in Singapore – injected $ 350 million into a newly formed holding company, which in turn completed the deal with ArcelorMittal. A spokesman for the European Commission declined to comment on the details of the transaction, Gupta said it “continues to monitor ArcelorMittal’s implementation of the divestment commitment.” Announcing the deal’s completion, Gupta said European steel mills would be “an important part of our global steel strategy.” But they also had a more immediate benefit: access to even more money. Again, the source of the funding was Greensill, but this time on an even bigger scale: Gupta got 2.2 billion euros ($ 2.6 billion) in new credit facilities secured on the assets he bought from ArcelorMittal, according to business records – far more than the sales price of 740 million euros. The dizzying pace at which Gupta has negotiated deals over the past three years has made it difficult for anyone outside of his familiar circle to keep up. With the new firepower generated by the ArcelorMittal deal and Greensill’s financial alchemy, he barely paused to breathe. Two weeks after the deal closed, he bought back hundreds of millions of dollars in bonds from GAM Holding AG, allowing the fund manager to draw a line. under a scandal that claimed the job of its star trader Tim Haywood and threatened to engulf Greensill and Gupta. Within months, Gupta announced more deals: an Australian pipe manufacturer, a steel plant in Louisiana and a Belgian aluminum plant. , Gupta had repaid the loan with his Australian stocks. Instead, he agreed a new line of credit with Greensill – this time based on the “future claims” of his Australian assets, according to a company filing. It was the kind of financing that Gupta would increasingly rely on. In his testimony to his company’s insolvency earlier this month, Lex Greensill said that the Gupta group of companies, known as GFG Alliance, was “heavily dependent” on Greensill’s funding, “particularly funding through its future debtor programs.” Suit Shines Light on Greensill’s Unusual Methods In the second half of 2020, Greensill faced increasing pressure to reduce exposure to GFG. Around the same time, Gupta was gearing up for its most ambitious deal to date: an offer to buy the German giant’s massive steel output. Thyssenkrupp AG. If successful, the purchase would hold the promise of new financing – this time, Gupta announced in October, from Credit Suisse Group AG. Just a month ago, the Thyssenkrupp deal fell apart amid disagreements over its value and also concerns over Gupta’s ability to fund the deal, Bloomberg reported at the time. Credit Suisse declined to comment. Shortly afterwards, Gupta’s main financier, Greensill, filed for insolvency. With Gupta’s chain of acquisitions coming to a halt, there is one more important deal to be struck: the one to save his own company. Visit us at bloomberg.com Sign up now to stay ahead of the curve with the most trusted business news source. © 2021 Bloomberg LP