Liberty’s Sanjeev Gupta bets on stressed assets to make local debut

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, the US, India and Australia. 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 AutoBSE -0.93 % and ABG ShipyardBSE 2.94 % 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 ship breaking, melting down the scrap that’s generated to make more of the alloy. “Our model for ABG Shipyard is based more on ship breaking, 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 pounds 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 SteelBSE 0.41 % and Bhushan SteelBSE 0.74 % in its IBC list, multi-billion 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 companies for sale in India but have not decided on pursuing any vigorously yet,” he said. On Wednesday, the Ahmedabad bench of the National Company Law Tribunal (NCLT) approved initiating bankruptcy proceedings against Essar Steel. 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.” DRI refers to an alternative steel production method. Gupta’s thesis is simple: Buy or invest in upstream steel and aluminium 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 cash flows 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.” Liberty House posted $7 billion revenue in the year to March with ebitda (earnings before interest, taxes, depreciation and amortization) exceeding $100 million. The larger GFG Alliance posted double the ebitda and $10 billion in revenue. Most of these businesses, especially the ones under his scanner in India, have positive ebitda but their debt has ballooned and a long “unproductive era” coupled with “high interest rates” have led to severe capital and balance sheet dislocations. Restructuring the debt–through a combination of rate, tenure subventions and modifying the principal–is essential to revive them, he said. Even as the Gupta juggernaut rolls on — turning around 50 companies in UK alone — and the business circles marvel at the uncanny ease at which the father-son Gupta duo has been stamping geographies with their name, many have also questioned the stability of the finances that are backing these rather bold strides.

In house belt tightening
Liberty’s own foray into providing financial support to midcap companies began after it acquired Tungsten Bank in the UK last year, to bridge the gap between the financial needs of mid sector companies. “If you look at some of the acquisitions that we have done in the UK, quite often the mid-sector companies are not supported by the banking sector, especially in the industrial sector and so we thought it fitting in our overall strategy to have banks that can not only serve our own industrial footprint but also other industries in this space,” Gupta said. Similarly, his decision to develop their own energy portfolio was also taken in a similar vein- to secure the group’s portfolio companies of consistent and cheap energy, saving them from exposure to the high energy prices in the UK. Last week, Liberty House, through its sister concern Shipping, Industry, Mining, Energy, and Commodities Experts (SIMEC) commissioned its first bio-fuel based mini power station at Liberty Steel Newport and was also reported to have shown interest in solar projects in India and a tidal waved energy project in Gujarat, on his visit to Mumbai last year. The idea is to extract maximum value in the assets by controlling input costs and the entire value chain – from mines to scraps to the finished product.

Source:TheEconomicTimes