Sanjeev Gupta’s steel empire is under the spotlight. The UK entrepreneur announced on Tuesday that his GFG Alliance conglomerate has adequate funding to meet current requirements, a day after key financing partner Greensill said that GFG had begun to miss scheduled debt payments. British Prime Minister Boris Johnson will be feeling the heat too.
It’s hard to ascertain exactly what is going on at GFG, whose Liberty Steel arm operates mills across 12 countries, and is the third-largest steelmaker in the UK. Despite pledging to release consolidated accounts last year, Liberty is yet to do so, and the last published accounts for its UK businesses are a couple of years old. Greensill’s lawyers, however, have said GFG has fallen into “severe financial difficulty”. The Financial Times on Monday reported that the UK invoice finance group has $5 billion of exposure to GFG.
If GFG needed rescuing, its private sector peers are unlikely to help. Despite the current spike in steel prices, caused by shortages as producers hurriedly restart facilities, the European steel market is struggling with excess capacity. Rivals might actually benefit if GFG plants, which produce over 5% of Europe’s annual steel output, were to close.
That would leave the UK government. Johnson probably won’t pump fresh equity into Gupta’s empire, given its global reach and debt pile. But he could come under pressure to provide funding to the UK parts or buy them after the debt has been restructured. Even that could prove costly. The UK market is uncompetitive, largely because electricity costs are 62% and 86% higher than in France and Germany, UK Steel reckons. Tata Steel UK made operating losses in the last two years.
True, GFG provides specialized steel for UK groups like Rolls-Royce. But the UK already imports 61% of its 10 million tonnes of annual requirements. It could always import more.
The UK government may still end up providing some help. Liberty employs 15% of its overall 35,000 workforces in the UK. Johnson is paying millions of Britons’ wages under the pandemic furlough scheme, and so will not want to add to unemployment when support ends. Liberty’s plants are far from London, so letting them collapse would undercut his policy to “level up” the country’s poorer regions. But given the UK steel industry’s challenges, Johnson should prepare himself for a long-term investment with an uncertain exit.
(With inputs from agencies)