Bloomberg
Sanjeev Gupta’s Trophy Deal shows how he built a shaky empire on debt
(Bloomberg) – The industrial Sanjeev Gupta tried to achieve its biggest price yet in early 2019: an agreement to buy a series of steel mills in Europe from ArcelorMittal SA. There was only one problem: he struggled to find the cash. The European Commission has insisted that it invest more of its own money – and incur less debt – before approving the purchase. For Gupta, as on so many occasions, the answer was a creative solution from financier Lex Greensill. Greensill’s company has granted hundreds of millions of dollars in credit to Gupta’s businesses based on the stock of its Australian assets. Problem solved, a few months later the ArcelorMittal agreement was made. The story of Gupta’s acquisition of the ArcelorMittal assets illustrates how the British Indian entrepreneur built his empire by moving cash from one part of his business to another. The report, based on corporate documentation spanning Australia, Singapore and the United Kingdom, and interviews with two people with direct knowledge of the agreement, suggests that its rise has led to the conclusion of one agreement after another, to raise new funding at every stage and thus set up debt. on top of that debt – a lot of it from Greensill. With its largest credit provider now in insolvency, Gupta is facing a settlement. Without access to more funding from Greensill, and with its ability to continue to seriously hamper transactions, what becomes of the so-called “savior of steel”? ToolsGFG’s series of financing agreements reflect its strategy to improve the operating and commercial performance of the assets, a series of countercyclical investments, “said a spokesperson in response to questions. We 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 large enterprises and benefit from strong markets for steel, iron ore and aluminum. Spokesmen for Greensill 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. Gupta has been begging his employees behind the scenes for months to find cash for the deal, according to one of the people. It is not uncommon for buyers to borrow to finance their transactions. But usually they inject a minimum portion of their own money – or equity – to reduce the risk their credit providers take should the value of the asset decline. After Gupta withdrew the additional cash, Brussels, it was involved because the ArcelorMittal assets were sold to meet a European Commission requirement, declaring themselves satisfied with Liberty as a buyer. According to her, the Commission noted that Liberty’s original proposal ’caused concern’ because it would have been ‘strongly exploited’, in the final version of the agreement the share contribution increased and represents 30% to 40% of the purchase price, but in fact, the contribution was only due to another debt, the people said: the Greensill loan against Gupta’s Australian assets. the filing of Liberty OneSteel (Primary) UK Ltd., an asset holding company, shows that an A $ 1 billion facility was agreed at the end of February 2019 against the Australian stock. At the end of June 2019, $ 280 million had been drawn from it, another submission program. Another Australian entity owned by Gupta, Liberty Infrabuild Ltd., has borrowed A $ 233 million, also in stock, according to its accounts. Based on the exchange rates at the time, the two amounts amounted to about $ 360 million. Meanwhile, another of Gupta’s powerful companies, Liberty Primary Steel & Mining Pte Ltd., registered in Singapore, injected $ 350 million into a newly formed holding company, which in turn completed the transaction with ArcelorMittal. A European Commission spokesman declined to comment on the details of the deal. Gupta announced the completion of the agreement, saying that European steel mills would be “an important part of our global steel strategy.” ‘to even more cash. Once again, the source of funding was Greensill, but this time on a larger scale: Gupta received € 2.2 billion ($ 2.6 billion) in new credit facilities secured on the assets it bought from ArcelorMittal, according to the company’s documentation – far more than the sale price of 740 million euros. The dizzying pace at which Gupta has been trading for the past three years has made it difficult for anyone outside its inner circle. With the new firepower generated by the ArcelorMittal agreement and Greensill’s financial alchemy, he barely held his breath. Two weeks after the deal closed, he bought back hundreds of millions of dollars worth of bonds from GAM Holding AG, allowing the fund manager to draw a line. under a scandal that claimed the work of his 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. By August 2019, Gupta had repaid the loan against its Australian stock. Instead, he agreed a new line of credit with Greensill, according to the Australian assets’ ‘future debtors’, according to a corporate filing. It was a kind of financing that Gupta would rely on more and more. In his testimony about his company’s insolvency earlier this month, Lex Greensill said Gupta’s group of companies, known as the GFG Alliance, “is heavily dependent” on Greensill’s funding, “especially through future accounts receivable programs.” Read: Coal Miner Costume shines light on Greensill’s unusual methods By the second half of 2020, Greensill faced increasing pressure to reduce GFG exposure. At the same time, Gupta was getting ready for its most ambitious deal yet: an offer to buy the major steelmaking operations of German giant Thyssenkrupp AG. If successful, the acquisition will offer the promise of new financing – this time, Gupta announced in October, from Credit Suisse Group AG. Just a month ago, the Thyssenkrupp agreement expired, amid disagreements and also concerns about Gupta’s ability to finance the deal, Bloomberg reported at the time. Credit Suisse declined to comment. Shortly afterwards, Gupta’s main financier, Greensill, filed for insolvency. With the acquisition of Gupta brought to a halt, there is another important thing to do: the one to save his own business. For more articles like this, please visit us at bloomberg.com. Sign up now to stay ahead of the most trusted business news source. © 2021 Bloomberg LP