Liberty Steel facing financial questions

Liberty Steel facing financial questions

U.K.-based GFG Alliance, a holding company that owns metals producers, reportedly has had its primary financing source severed.

March 3, 2021

The United Kingdom-based GFG Alliance, which includes steelmakers Liberty Steel and InfraBuild and aluminum producer Alvance in its company portfolio, has been cut off by its chief financing arm and has reportedly struggled to find a replacement.

Media outlets in the U.K., including the BBC, have reported that one of GFG’s “primary sources of finance” for several years has been London-based Greensill Capital. That firm’s exposure to GFG has “prompted the Swiss investment bank Credit Suisse to freeze withdrawals from up to 10 billion pounds sterling ($13.9 billion) worth of funds held as security” between Greensill and Credit Suisse, according to an early March BBC online report.

The media firm says connections between Greensill Capital and Switzerland-based GAM Holding AG caused a senior manager at GAM to resign, seemingly concerning “allegations of poor risk management and due diligence over billions in loans to Mr. Gupta’s empire.”

An online news item from Bloomberg indicates shortly after the GAM disclosure, the Vision Fund of Japan-based SoftBank Group Corp., formerly a backer of Greensill Capital, “now thinks its $1.5 billion holding in the firm may be worth close to nothing.”

The London-based Financial Times has reported that GFG and its Chair Sanjeev Gupta turned to Canada-based investment fund Brookfield Asset Management Inc. as an alternative source of financing, but that firm “ended talks” with Gupta in early March, “dealing a blow to the British industrialist’s efforts to secure funding beyond his main lender Greensill Capital.”

The BBC says it has spoken with sources who indicate Greensill, meanwhile, is “in serious financial trouble” and that it would “not be wrong to surmise that it was likely to go into administration,” or bankruptcy protection.

Responding to the BBC, a spokesperson for GFG Alliance told the news organization the firm “has adequate funding for its current needs” and that its “refinancing plans to broaden its capital base and obtain longer term funding are progressing well.”

In late 2020, GFG entered into negotiations to buy the steelmaking assets of Germany-based Thyssenkrupp. Those talks broke off in mid-February this year, with the Financial Times quoting the German steelmaker’s chief financial officer as saying of the two firms, “In the end, our ideas about the corporate value and the structure of the transaction were far apart.”

In Australia, GFG operates assets formerly belonging to OneSteel under the InfraBuild brand it debuted in late 2020. The Financial Times refers to those steelmaking and scrap recycling properties as among “the most stable assets within the industrialist’s GFG Alliance empire.”

In the United States, GFG’s Liberty Steel operates an electric arc furnace (EAF) mill in Illinois and a wire drawing facility in Pennsylvania. The firm also owns the assets of the former Georgetown Steel in South Carolina, but its plans to upgrade and restart the EAF melt shop there appear to have stalled in 2020.

In the U.K., the firm has installed EAF rebar production capacity in England and operates older integrated steelmaking complexes. The BBC reports in early March that union leaders representing workers at those plants are bracing for bad news. A leader from a union called Unite is quoted as saying, “Unite has always been concerned about the financial basis that Liberty Steel is based on. The latest concerns about the future of Greensill and Sunjav Gupta’s refinancing difficulties are deeply alarming, and Unite will be seeking urgent reassurances about the health of the business units in the U.K.”