STRESS RELIEVER
He has been buying stressed assets across the world for the last five years. Now NRI Sanjeev Gupta has turned to India. Who is this man and will he succeed?
THE MAN AND HIS COMPANY have repeatedly been in the news in recent months, as the process of selling off stressed assets under the new Insolvency and Bankruptcy Code (IBC) – passed in May 2016 – gathers steam. When bids were invited for shipbuilding company ABG Shipyard, Sanjeev Gupta’s Liberty House was the only company to respond, even raising its offer to ` 5,600 crore when the initial bid was rejected as too low. Liberty House was the higher of the two bidders for auto parts maker Amtek Auto, quoting ` 4,334 crore, as it was for steel manufacturer Adhunik Metaliks.
Liberty House entered the fray for Bhushan Steel after the bid deadline but with an offer of ` 18,500 crore. Though it was substantially larger than the second highest bid of Tata Steel at ` 17,000 crore, it was rejected as it came after the deadline. The proposed acquisitions are all facing hurdles, notably because it emerged that Liberty House owed Exim Bank around $2.8 million and was thus liable for disqualification under Section 29A of the IBC – though Gupta insists he has since paid up – but there is no doubt that both Gupta and Liberty House suddenly loom large over India’s business landscape.
Who is Sanjeev Gupta? He is a 47-year-old NRI billionaire, headquartered in the UK, whose Liberty House, part of the conglomerate called Gupta Family Group (GFG) Alliance, has been making an astonishing series of acquisitions of loss-making companies over the past five years. The assets range from the UK and France to Australia, encompassing the US. “We have taken over around 50 assets investing $3 billion since 2013,” Gupta told Business Today.
The bigger acquisitions include global mining and metals’ giant Rio Tinto’s aluminium smelter plants in Scotland and France, for $412 million and $500 million, respectively; the takeover of Australian mining and materials’ company Arrium for $750 million, as well as steelmaker ArcelorMittal’s Georgetown Steelworks in South Carolina, US, for an undisclosed amount. Another big buy was Tata Steel’s specialty steel division in the UK for $134 million. Indeed, Liberty House was in talks to buy up Tata Steel’s entire loss-making UK steel operations before Cyrus Mistry’s abrupt removal as Tata Sons chairman in November 2016 put paid to the negotiations. It has also bought up Amtek Auto’s UK assets.
GFG Alliance comprises chiefly Liberty House, engaged in steel and aluminium manufacturing, commodities trading, recycling and auto engineering and components businesses, run by Gupta; SIMEC, a clutch of companies involved in renewable energy, mining, ports and more, set up and run by Gupta’s father Praduman Gupta; JAHUMA Estates, which owns vast land parcels in the UK and engages in real estate, and financial services companies, including two recently acquired UK banks – Wyelands (formerly Tungsten) Bank and Diamond Bank (to be renamed British Commonwealth Trade Bank, once all the approvals are through). In 2015/16, the group had revenues of around $10 billion, but Gupta expects the figure to have swelled to $15 billion by 2017/18, following the acquisitions since then, with an operating profit of around $500 million. By themselves, Liberty House’s financials are more modest – according to filings in the UK, and excluding its steel business, it had revenues of less than $60 million in 2014, with profits of $90,626.
Liberty House and SIMEC have made such major acquisitions in Australia – apart from Arrium, they have taken over renewable energy developer and storage battery maker Zen Energy, the Tahmoor coal mine – that Gupta has shifted residence to Sydney with wife Nicola and their three children. His plans for India are wildly ambitious – against the $3 billion spent worldwide in the last five years, he wants to invest $5 billion (`32,500 crore) in Indian stressed assets alone. He also insists he is not looking only for bargain buys in India, but also wants to invest another $5 billion in
financial services, making electric vehicles and acquisition of other assets.
Not surprisingly, some quarters are suspicious. “There are a lot of missing elements in Sanjeev Gupta’s success story,” says the CEO of an Indian metals company. “He suddenly surfaced with a large bounty to buy assets from companies like ArcelorMittal, Rio Tinto and Tata Steel. It’s not clear how he made his wealth. If huge corporations failed to turn these sick assets around, how will he?”
No Mystery Man
Gupta, however, appears willing to talk about himself and his rise. He says he was born wealthy, with his father owning steel-rolling mills in Ludhiana and Pune. Later his father and uncles added a bicycle-making business – the birth of SIMEC. The business grew and expanded to Nigeria, where they started more businesses. His uncles continue to run businesses in Nigeria. Born in Ludhiana, Gupta did his final schooling in the UK.
“At the beginning of my Class X, when I was around 14, I went to London to visit my elder brother who was already studying there,” he says. “I found the UK interesting and told my parents I didn’t want to return.” His parents acquiesced, and he was enrolled in a school at Canterbury, Kent. Gupta went on to Trinity College, Cambridge. His business genes were already at work – while at college itself, in 1992, he started Liberty House, initially as a trading company which sold caustic soda and other chemicals to Nigeria, bought from Imperial Chemical Industries (ICI). “I was called ‘ Mr Caustic Soda’ in those days, but, in fact, we were supplying around 80 products to Nigeria, from rice and fish to fastmoving consumer goods to mosquito coil, glass and paper,” he says. “Later we started industrial production in Nigeria itself and cut down on sourcing.”
The first sick company Gupta tried to buy was Alpha Steel in Newport, UK, in 2007, but he was outbid by a Russian company, which renamed it Mir Steel. But Mir Steel failed to take off as well, and was finally sold to Gupta in 2013. The company is still struggling, but is much better off than before. “In its heyday, the plant made one million tonne (MT) of steel annually, but now makes half that much,” says Gupta. “We’re in the process of restarting the blast furnaces to take it to 1 MT.” But he has been able, over two years, to resolve all the 100-odd legal wrangles Mir Steel was embroiled in.
Gupta’s big opportunity came with the crash in global steel prices in 2015. It left Tata Steel’s UK business tottering, and also led to the collapse of many other steel plants, among them those of high-profile NRI industrialist Swaraj Paul’s Caparo Group. A number of Caparo companies went up for sale around the time Mir Steel went on stream, and Gupta bid for all of them. “There were 20 plants across the country employing 2,000 people,” he says. Ultimately, however, he was able to acquire just two – Caparo Tubular Solutions, with around 350 employees, and Caparo Merchant Bar, with about 150.
Thereafter acquisitions by both Liberty House and GFG Alliance multiplied. Liberty House bought Am-
tek Auto’s bankrupt units in the UK, CovPress and Shiftec, making it – according to Gupta – the largest auto components player in the country, while the parent conglomerate acquired France-based aluminium wheels manufacturer, AR Industries. With the purchase of the aluminium smelting unit in France from Rio Tinto, the auto business and the upstream aluminium business were integrated. Tata Steel’s specialty steel mills followed. There were more acquisitions in steel, auto and aluminium. Liberty House’s steelmaking capacity alone is around 8 MT.
To save on power costs, Gupta bought a thermal power plant near the Mir Steel unit in Newport and converted into a captive waste-to- energy plant. So too, Zen Energy in Australia is helping meet the power needs of Arrium, the sole maker of long steel in that country. Other power plant purchases have given GFG Alliance a portfolio of around 1,000 MW. Alongside came the foray into financial services, with Gupta acquiring Wyelands Bank and Diamond Bank, an insurance company, an investment banking advisory business and a fintech platform. Overall, GFG Alliance now has a presence in 30 countries, with over 11,000 employees at 200 locations. Its trading business spans 60 countries.
It plans to grow even more. Gupta hopes to build steelmaking capacity of 10 MT in Australia alone, along with 10,000 MW of renewable energy plants. In the US, Georgetown Steelworks will start operations this month, and more acquisitions will follow. In France, he wants to set up an aluminium car body making unit alongside the smelter plant, with an investment of $3.5 billion.
But where does the money for all these acquisitions come from? “Since we’re a private business house, people don’t know the kind of wealth created by our companies,” says Gupta. “Our family has significant financial resources. Our internal accruals are huge. But it is only from 2013 that we have started acquiring and also telling our story to the world.” He maintains he has never taken loans to fund acquisitions so far, though this may well change in future. “We will raise debt capital and look at public listing of some of our companies as well for our future acquisitions and expansions,” he says.
No doubt, Gupta’s sudden prominence has spawned critics and sceptics. “The suspicion is that most of the assets were bought at zero value when the metals and commodity businesses were in shambles,” says Sanjay Sethi, Managing Partner and CEO of financial consultancy firm, Nestor Consulting. “But those who bought the distressed will have to repay at least a part of the debt as well.” (Gupta denies this, maintaining he has taken over only the employees and the assets of the acquired companies, not their liabilities.) UK media reports have noted that Liberty House is registered in the tax haven of the Isle of Mann, while SIMEC operates through a complex web of companies stretching from Wales to Singapore.
Plans for India
At present, Gupta does not even have a corporate office in India, though he intends to set up one in Mumbai’s Bandra-Kurla complex soon. But he does own large swathes of land – all those locations where his grandfather’s steel-rolling mills once stood. “After my father gave away the bicycle business to his brothers, we have no business left in India,” he says. But that is soon going to change. “Our biggest story this year will be in India,” he adds. “In the last decade, there was much pressure on me to build something in India, but this is a tough country to do business in, so things have been delayed.”
He tried to enter India twice before, but failed both times – in 2003 and 2010/11. This time too, there have been hiccups, notably Exim Bank’s pending dues from Liberty House, which he hopes will now cease to be an issue. Gupta was also late in bidding for BPSL, doing so well after the deadline of early February this year, which prompted the resolution professional (RP) handling the matter to refuse considering it. Rival bidder Tata Steel also insisted the bid be rendered invalid. The NCLT, however, has rejected this plea and Liberty House is back in the running. Not that it means BPSL is a cinch for Gupta. Under the IBC, the RP is required to consider several aspects of every bid, not just the valuation offered. “There is lack of clarity about the group structure of GFG,” says a lawyer on condition of anonymity. “They call it an alliance, but Liberty House and SIMEC sometimes do business together.”
Gupta intends to bid for more steel assets in India. “We are negotiating with other small steel companies,” he says. He also plans to enter financial services in the country and manufacture EVs, using the Amtek Auto platform once he gains control of the company. Liberty House has associated with Formula 1 car designer Gordon Murray, who designed iStream – the light car body structure which will be used for EVs. “We want to launch it in India and Australia in the next two years,” he says.