Connect with us

Analysis

Sanjeev Gupta’s empire building faces test of its steel

Published

on


It would have been a crowning achievement for an industrialist who has forged a global empire from assets no one else wanted.

But just weeks after Sanjeev Gupta failed in a bid to add the vast steel operations of Germany’s Thyssenkrupp to a collection of businesses dotted across four continents and employing 35,000 people, the 49-year-old is under siege.

Gupta admitted this week that the collapse of Greensill Capital, his main lender, had created a “challenging situation” for his companies that span steel, aluminium, renewable energy and a commodities trading business. The Gupta family-owned businesses are grouped together under the GFG Alliance.

Suppliers, unions and politicians from the UK to Australia are sounding the alarm over an industrial powerhouse that began in 2013 when Gupta, then a trader of commodities, acquired a small steel mill in the Welsh town of Newport.

The move saved the plant from permanent closure, setting the pattern for almost a decade of ceaseless dealmaking that won Gupta political support as he saved jobs in industries that had been written off, but drew scepticism over how his businesses were able to keep writing the cheques.

As Gupta races to find new financing, his UK businesses, which employ close to 5,000 people, are among those in the spotlight. Some 3,000 work in steel, under the umbrella of Liberty Steel, and the metals magnate told unions this week that parts of it were unprofitable.

Its operations are spread across the UK, spanning a mill in Scunthorpe, an aluminium technologies car components centre in Coventry to Britain’s last aluminium smelter in Scotland. Its speciality steel business makes high-end products for aerospace manufacturers, including Rolls-Royce. The group also owns an estate in the foothills of Ben Nevis, Britain’s tallest mountain.

Waiting for payment

Concerns are focused on the fate of the group’s speciality steel business which, along with its aerospace customers, is suffering from the sector’s pandemic-induced downturn. Gupta said this week that the business had seen demand for some of its products plunge by 60 per cent. The company said it is in talks with customers and suppliers to improve cash flow and secure additional working capital facilities to “support the [speciality steel] business”.

Rolls-Royce declined to comment in detail but said it was working with Liberty Steel and believed it had a “solution that will expedite the delivery of enough materials to support our supply chain until 2022”.

Production at its Rotherham and Stocksbridge speciality steel plants in Yorkshire is stopping temporarily from Friday, with staff going on furlough, according to two people familiar with the matter.

GFG said: “Some UK businesses will be operating intermittently, which can and will be achieved without compromising the condition of the plants. We are working closely with the trade unions and will be making use of the government furlough scheme for employees where possible in those circumstances.”

Suppliers to Liberty’s UK plants, meanwhile, are watching anxiously. Several scrap metal companies said they had already reduced their exposure to Liberty or stopped supplying the steelworks altogether.

Liberty Steel’s operation in Newport, south Wales © Huw Evans/Shutterstock

Liberty transforms the recycled metal into finished goods by heating it at up to 1,800 degrees in an electric arc furnace.

A smaller scrap metal dealer, which relies on Liberty for around 10 per cent of its annual turnover, told the Financial Times it is owed more than £500,000 by Gupta’s business. The supplier was told by Liberty representatives on Tuesday not to expect payment until mid-April at the earliest, several months behind schedule.

With any unravelling of GFG likely to hit UK manufacturing hard, Kwasi Kwarteng, the business minister, has held crisis talks with Liberty in recent days. GFG said this week that it is “operationally strong”, had funding for its current needs and that talks to secure new financing are “progressing well”.

The company has hired investment bank PJT Partners and advisory firm Alvarez & Marsal to help it secure new financing, according to two people familiar with the situation.

Politicians on alert

The UK steel business may be in the heart of the storm but politicians from France to the US and Australia are on alert.

After securing the Newport mill, Gupta embarked on a spending spree that included acquiring Europe’s largest aluminium smelter in Dunkirk from Rio Tinto in 2018. The next year, he acquired several European steel plants from rival steel manufacturer ArcelorMittal and made a big push into the US. Today, the group also owns steel mills in Romania and the Czech Republic.

In France, where Liberty Steel snapped up the Ascoval and Hayange steel plants last year, Bruno Le Maire, the French finance minister, said the government was prepared to step in to help employees if needed.

Gupta’s business interests span global borders

If the UK is one major hub in Gupta’s empire, Australia is another.

With 6,500 jobs at stake, the Australian government is considering how it can protect employment if Gupta’s problems deepen.

“Obviously it is concerning the financial situation the company finds itself in,” said Dan Tehan, Australia’s trade minister. “We will be doing all we can to help and support those jobs.”

Nowhere is the anxiety over the fallout from Greensill’s demise felt more keenly than in the South Australian town of Whyalla, where a GFG-owned steelworks employs almost a tenth of the population. Last week GFG said Whyalla had made a profit for the first time since it was rescued by Gupta in 2017.

But that has not stopped concern over the late payment of some suppliers to the plant, according to Frank Pangallo, a member of the South Australia parliament.

“We know the steelworks are in the black and the company is making a lot of money from the iron ore mines. So why are suppliers still having to beg to be paid on time,” he said.

One supplier to GFG, who did not want to be named for fear it would reduce his chances of being paid, said he was owed more than A$500,000 (£280,000) for work stretching back to November.

John Chapman, South Australia’s small business commissioner, told the FT he was not aware of any substantive issues in recent times. However, last week he wrote to Gupta raising concerns about what the implosion of Greensill would mean for supplier payments.

A GFG spokesman declined to comment on late payment of suppliers in Australia.

Saviour of steel

Dubbed “the saviour of steel” by the press because of his appetite for an industry long beset by too much capacity, Gupta does have one tailwind as he confronts the crisis: a booming metals market.

Steel prices are at their highest level in more than a decade and those for iron ore at a nine-year high, on the back of a robust rebound in Chinese demand.

Bankers in the sector said it is a backdrop that would help generate interest if Gupta does put assets up for sale. One steel trader said among GFG’s Europe assets, its plant in Dunkirk, and the mill in Hayange which produces railway tracks, would be likely to attract bidders. In the UK, the former Caparo steel processing businesses are judged to be among the most attractive. The Scunthorpe mill could also be of interest, bankers said.

Despite the mounting anxiety, unions in the UK said they backed Gupta’s efforts to find alternative funding to shore up his empire. The industrialist, who started his first business while studying at Cambridge university, has said he is used to defying sceptics.

But with lawyers for Greensill telling a London court this week that the finance group has exposure of about $5bn to GFG, this is his greatest test yet. 

Additional reporting by Michael Pooler in Sao Paulo



Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Analysis

Iranian TV action thriller delivers warning to Zarif

Published

on

By


It is hardly surprising that Mohammad Javad Zarif, Iran’s foreign minister and nuclear negotiator, is not a fan of Gando, a popular television drama that depicts an incompetent minister who scuppers nuclear talks with world powers by hiring dual nationals who turn out to be spies for MI6.

The series — made by an institute believed to be affiliated to the elite and hardline Revolutionary Guards — “is a lie from the beginning to the end” that “damages foreign policy more than me” by fuelling public mistrust, Zarif said.

By focusing on the nuclear talks, the Guards’ motive goes beyond creating compelling drama, reformist analysts say. Iran is in discussion with western powers about reviving the nuclear deal, a key reformist achievement, and hardliners want to deter the popular foreign minister from declaring his interest in the presidency in what is a crucial election year.

“I’ll be grateful to Gando-makers to let us continue our current job,” Zarif said this month, and commented that he would not run for the presidency.

The possibility of nuclear talks with the US and other powers has complicated an already fraught Iranian political scene ahead of the June election. Many reformists are pinning their hopes on Iran’s top diplomat to reinvigorate the nuclear deal and boost support at the ballot box. Hardliners might prefer to negotiate the deal themselves after the election. The polls are also seen as particularly crucial in case supreme leader Ayatollah Ali Khamenei, 81, dies during the next president’s term.

Pendar Akbari, left, and Ashkan Delavari, right, in a scene from ‘Gando’
Pendar Akbari, left, and Ashkan Delavari, right, in a scene from an episode of ‘Gando’. The series title refers to an Iranian crocodile able to distinguish its friends from its enemies © Bahar Asgari/Shahid Avini Cultural and Artistic Institute via AP

The purpose of Gando, which refers to an Iranian crocodile able to distinguish its friends from its enemies, “is to tell Zarif that should he dare to announce his candidacy, he will be destroyed immediately,” said one reformist analyst. “When the intelligence service of the Guards truly believes in the Gando plot lines, it means even if Zarif decides to defy such warnings, he will not be allowed to run.”

Centrist president Hassan Rouhani is due to step down this year after two terms and it is not yet clear who the presidential candidates will be. Politicians register as late as May and then have to be vetted by the Guardian Council, the hardline constitutional watchdog, which can disqualify nominees. Potential hardline candidates include Mohammad Bagher Ghalibaf, the parliament speaker and a former guards commander; Ebrahim Raisi, the judiciary chief; and Ali Larijani, a former speaker of parliament. On the reformist side, speculation has centred on Es’haq Jahangiri, first vice-president, Hassan Khomeini, a grandson of the founder of the Islamic republic, and Zarif.

A US-educated career diplomat widely respected in the west for his pragmatism, Zarif was instrumental in the historic deal in 2015, under which Iran curbed its nuclear activity in exchange for the lifting of sanctions. But Donald Trump abandoned the accord in 2018, imposed sanctions, including on Zarif, and said he would pursue a new accord to contain Iran’s regional and military policies. The US move emboldened hardliners, confirming to them the untrustworthiness of the US.

Zarif’s background in the US both as a university student and as Iran’s head of mission at the UN — during which he met US politicians including then senator Joe Biden — has long made him a source of suspicion for hardliners.

This wariness of both Zarif and the west is evident to viewers of Gando, as is the heroism of the Revolutionary Guards. Mohammad, the action hero protagonist, warns that western negotiators may sabotage refineries as part of nuclear talks. Mohammad works out of elaborate facilities akin to those in a James Bond film. The fictional foreign minister is advised by a media adviser, the main culprit, “to enter into direct talks with the US and accept the conditions of the leader of the global village”.

Vahid Rahbani in a scene from an episode of ‘Gando’
Vahid Rahbani in a scene from an episode of ‘Gando’. State TV abruptly stopped broadcasting the series that was less than halfway through its 30-episode run © Hassan Hendi/Shahid Avini Cultural and Artistic Institute via AP

The dramatic scenes reflect, in part, the worldview of some of Zarif’s critics. “Reformists, Mr Zarif and his lobby group in Washington [Iranian dual nationals] should be wiped out from Iran’s politics,” said an aide to a senior hardline politician who is a potential presidential candidate. “We have to get rid of this cancerous tumour once for good.”

Gholamali Jafarzadeh, a former conservative member of parliament, said Zarif “is not a good statesman and should not run for president” while “reformists should know that their choices have no chance to be allowed to run”. 

This month, state TV abruptly stopped broadcasting the series that was less than halfway through its 30-episode run. Local media said broadcasts would resume when the presidential race was over. Iran’s centrist president Hassan Rouhani, whose signature achievement is the nuclear deal — alluded to the show on Wednesday and said “people’s money” should not be spent on “fabrication of the truth” and “distortion of facts”.

After three years of sanctions, many voters are disillusioned by the infighting and the prospect of real change, whatever the outcome of the election. “Whether Zarif or a figure more senior than him runs or not, I’m not going to vote,” said Hamid, a 40-year-old engineer. “Let the Guards win the election as they are the ones who are running the country anyway. Why shall I make a fool of myself?” 



Source link

Continue Reading

Analysis

Rising inflation complicates Brazil’s Covid-19 crisis

Published

on

By


After seven months in lockdown, Michele Marques received some unwelcome news when she returned to work: while she was away the prices of almost all the products she uses as a hairdresser had soared.

“A box of gloves rose 200 per cent. Colouring products increased at least 100 per cent,” said the 37-year-old from São Paulo, underlining how costs were rising while her revenue had collapsed. “I had to raise the price of my services, too.”

It is a dynamic that is playing out across Brazil, adding an extra layer of complexity to the country’s coronavirus crisis, which has already claimed the lives of almost 350,000 individuals and pushed hospital services to the brink.

With much of Latin America’s largest economy being shuttered, inflation is surging to its highest level in years, fuelling a silent scourge of hunger among poorer citizens that has run in parallel to the Covid-19 pandemic.

“The high price of staple foods — rice and beans, for example — has led to the disappearance of these items from the table of millions of Brazilians,” said Ana Maria Segall, a researcher at the Brazilian Research Network on Food and Nutritional Sovereignty and Security. In the 12 months to the end of March, the price of rice increased 64 per cent and black beans 51 per cent.

“In Brazil currently food inflation has penalised the very poorest, preventing them from having adequate access to food and in many situations leading to hunger,” she said, adding that rising unemployment and the curtailment of social programmes were also contributing factors.

Volunteers hand out food in São Paulo © Alexandre Schneider/Getty Images

Less than half of Brazil’s population of 212m now has access to adequate food all the time, with 19m people, or 9 per cent of its inhabitants, facing hunger, according to a recent report by Segall’s group.

“I’m doing some odd jobs, but it’s not enough to keep us going,” said Jonathan, a 28-year-old who lost his job in the kitchen of a Chinese restaurant in São Paulo when the pandemic began. He said he now struggles to provide enough food for his three young children and pregnant wife.

On a 12-month basis, inflation in June is expected to surpass 8 per cent, far above earlier estimates. In the 12 months to March, food prices jumped 18.5 per cent, while the price of agricultural commodities in local currency surged 55 per cent and the cost of fuel increased almost 92 per cent.

Line chart of Percentage increase over past 12 months showing The price of rice in Brazil is soaring

The developments pose a fresh challenge to President Jair Bolsonaro, who is already under fire for his handling of the Covid-19 pandemic. Across Brazil’s biggest cities, graffiti has sprung up labelling the populist leader “Bolsocaro” — a portmanteau of his name and the Portuguese word for expensive.

The rising prices are also likely to provide useful ammunition to leftist former president Luiz Inácio Lula da Silva, who returned to the political fray last month and may challenge Bolsonaro in elections next year.

“Bolsonaro is to blame for the increase in food prices, he is to blame for everything. They have to remove this guy,” said Maria Izabel de Jesus, a retiree from São Paulo.

Armando Castelar, a researcher at the Brazilian Institute of Economics, said the government had underestimated inflation both in terms of the numbers and also “how much a concern it should be”.

He attributed the rising prices to the devaluation of the Brazilian currency, triggered in part by the stimulus packages passed by the US government — which helped to bolster the dollar and led to higher Treasury yields — and the brighter economic outlook outside Latin America.

“You have a situation where commodity prices are going up because the global economy is going to grow a lot this year. With the growth in the US, interest rates are going up and the dollar is strengthening. This puts a lot of pressure on the exchange rate in Brazil and emerging markets in general,” he said.

As the spectre of inflation loomed last month, the Brazilian central bank raised its key interest rate by 75 basis points, higher than the half-percentage point many economists had expected. A further rate rise is expected next month.

“The central bank acted correctly, but it cannot stop there. It is important not to be too lenient in dealing with this,” said Castelar.

Silvia Matos, a co-ordinator at the Brazilian Economy Institute, also pointed to Brazil’s weakening currency as a contributing factor to inflation. But she said the slide in the real was triggered by investor concerns over Brazil’s deteriorating public finances.

Following the creation of two separate stimulus packages to mitigate the impact of Covid-19, government debt has risen to about 90 per cent of gross domestic product, a high level for an emerging market economy.

The rollout of the second of these packages began this month, with 45m Brazilians set to receive $50 a month for four months.

Critics said, however, these stipends were not nearly enough to keep people both fed and at home in lockdown.

“It is essential that the emergency aid is of a greater value, so that people do not leave the house but no one also stays at home starving,” said Marcelo Freixo, a federal lawmaker with the leftwing PSOL party.

“We need to reduce the circulation of the disease. Brazil is already experiencing 4,000 deaths per day. We will reach 500,000 total deaths by the middle of the year.”

Matos says that inflation had hit poorer citizens much harder than middle-class and rich Brazilians because a larger portion of their income was dedicated to food, the price of which has increased substantially.

“The only thing that could help right now is to get out of this pandemic,” she said.

Coronavirus business update

How is coronavirus taking its toll on markets, business, and our everyday lives and workplaces? Stay briefed with our coronavirus newsletter.

Sign up here



Source link

Continue Reading

Analysis

Can CVC pull off a $20bn ‘deal of the century’ at Toshiba?

Published

on

By



Proposed management buyout looks like an improbable win for the Japanese conglomerate’s embattled CEO



Source link

Continue Reading

Trending