Lib­erty Chief Seeks Stressed As­sets to Feed the Value Chain

San­jeev Gupta, hav­ing placed bids for ABG Ship­yard and Amtek’s In­dia units, be­lieves in in­vest­ing in up­stream units and us­ing raw ma­te­rial for down­stream ex­pan­sion

The Economic Times - - Companies: Pursuit Of Profit -

Vat­sala Gaur & Arijit Bar­man

Mumbai: The stressed as­sets set to flood the In­dian mar­ket of­fer an op­por­tu­nity for San­jeev Gupta, the UK-based In­dian bil­lion­aire be­hind the Gupta Fam­ily Group (GFG) Al­liance, to make a big-bang lo­cal de­but. Gupta came to promi­nence in his coun­try of ori­gin as a bid­der for Tata Steel’s UK units but be­fore that he built his rep­u­ta­tion and busi­ness em­pire through ac­qui­si­tions of trou­bled as­sets in Bri­tain and the US.

He runs a swathe of pri­vately-held com­pa­nies in­clud­ing global in­dus­trial, met­als, en­gi­neer­ing and fi­nance group Lib­erty House, be­sides SIMEC and Wye­lands Bank. Lib­erty House has al­ready put in a bid for auto com­po­nent maker com­pany Amtek Auto and ABG Ship­yard, but is look­ing at other op­por­tu­ni­ties in its core steel and en­gi­neer­ing sec­tor, said a se­nior com­pany ex­ec­u­tive.

While Amtek’s sprawl­ing fa­cil­i­ties in In­dia and over­seas fit into the group’s fo­cus of us­ing its own steel and alu­minium in en­gi­neer­ing ap­pli­ca­tions for auto parts, de­fence, aerospace and re­new­able en­ergy, Gupta wants to use ABG for ship­break­ing, melt­ing down the scrap that’s gen­er­ated to make more of the al­loy.

“Our model for ABG Ship­yard is based more on ship­break­ing, mak­ing steel (scrap) out of there rather than just mak­ing ships,” Lib­erty House ex­ec­u­tive chair­man Gupta told ET in a phone in­ter­view from Aus­tralia. “Eco-friendly ship­break­ing is go­ing to be a big in­dus­try in the world and there are not many op­por­tu­ni­ties avail­able. ABG presents one of them.” Amtek and ABG Ship­yard are two of the 12 big de­fault­ers iden­ti­fied by the Re­serve Bank of In­dia last month for the launch of bank­ruptcy pro­ceed­ings un­der the In­sol­vency and Bank­ruptcy Code (IBC).

Lib­erty House last month ac­quired three plants of Amtek Auto in the UK along with 600 peo­ple for an undis­closed sum, for­ti­fy­ing its po­si­tion as the go-to buyer of dis­tressed as­sets. Th­ese plants make alu­minium cast­ings for Jaguar Land Rover and Ford among oth­ers and clock £150 mil­lion in an­nual rev­enue.

“It in­te­grates with our alu­minium busi­ness as we are the only pro­ducer of pri­mary alu­minium in the coun­try,” Gupta said. “We are now look­ing at all of their op­er­a­tions.”

With RBI in­clud­ing Es­sar Steel and Bhushan Steel in its IBC list, multi­bil­lion takeovers of prime, scaled op­er­a­tions have be­come a dis­tinct pos­si­bil­ity. Asked specif­i­cally about the two com­pa­nies, Gupta de­clined to go into specifics.

“We are look­ing at all steel compa- nies for sale in In­dia but have not de­cided on pur­su­ing any vig­or­ously yet,” he said.

Gupta has ne­go­ti­ated with Es­sar be­fore, hav­ing ac­quired its bank­rupt Min­nesota op­er­a­tions —“one of the low­est-cost pel­let pro­duc­ers in the world”. He along with his con­sor­tium part­ners are build­ing a large sponge iron plant there to in­te­grate down­stream op­er­a­tions. “US has a grow­ing amount of re­cy­cling,” Gupta said.

“Scrap ex­ports have dropped dra­mat­i­cally be­cause more and more it's be­ing con­sumed do­mes­ti­cally, so we want to sup­ple­ment the sup­ply with DRI (di­rect re­duced iron) so that there is suf­fi­cient raw ma­te­rial for re­cy­cling.”

Gupta’s the­sis is sim­ple: Buy or in­vest in up­stream steel and alu­mini- um units and use that raw ma­te­rial for down­stream ex­pan­sion in en­gi­neer­ing ap­pli­ca­tions in auto com­po­nents, aerospace, de­fence and re­new­able en­ergy. And, to tie it all up, pro­vide fi­nanc­ing sup­port. In mar­kets like the UK, where there is no pri­mary steel­mak­ing, he fo­cuses on re­cy­cling the “plen­ti­ful sup­ply of steel scrap” to pro­duce to pro­duce low-car­bon steel pow­ered by re­new­able en­ergy for en­gi­neer­ing prod­ucts. UK is the world’s largest ex­porter of scrap.

For the US, it’s more of a do­mes­tic con­sump­tion story. “We would like to have a strong com­po­nent of the lo­cal mar­ket and lo­cal raw ma­te­ri­als in our mod­els, whether its smelt shops and rolling mills that we have ac­quired and are ac­quir­ing or its iron ore and pel­let busi­ness — it is all lo­cal raw ma­te­ri­als fo­cused on the lo­cal mar­kets.”

SHOP­PING BAS­KET

Gupta has al­ready spent over £500 mil­lion on ac­qui­si­tions since the start of the year in his four key mar­kets of the UK, US, In­dia and Aus­tralia as part of a strat­egy of ac­quir­ing strug­gling busi­nesses with po­ten­tial and in­te­grat­ing them into the group’s end-to-end busi­nesses. He’s bought three of the Tata mills in UK but is said to be build­ing a big­ger war chest at the prospect of larger, more com­plex deals.

He’s pur­sued ac­qui­si­tions by ei­ther struc­tur­ing debt and ex­ist­ing cash­flows of tar­get com­pa­nies, but that strat­egy may have to be tweaked. “We typ­i­cally ac­quire as­sets and not pre­vi­ous debts, li­a­bil­i­ties or le­gacy is­sues ... but there are nu­ances in each case,” he said. “We have also been well en­dowed with eq­uity to the tune of $1.5 bil­lion. But go­ing for­ward we may have to take lever­age on our bal­ance sheet. As of now we don’t have any long-term debt.”

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