Sanjeev Gupta’s US Metals Float Might Work – Might Not Too, To Be Honest

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Sanjeev Gupta has been buying up marginal and distressed metals assets for some time now. It’s something of a replay of Lakshmi Mittal’s work, work which made Mittal one of the world’s richest people. Whether this is going to happen to Gupta – well, people have tried the tactic a number of times and it hasn’t always worked. Buying distressed assets is easy enough, making them un-distressed rather more difficult.

We would wish him well of course. And this latest stage is to purchase some US steel assets and then to float over there:

British Metals Magnate Bets on American Steel, Prepares U.S. Listing
Sanjeev Gupta’s push is a bet on U.S. steel market; IPO of North American steel assets planned

In a little more detail:

GFG Alliance, the acquisitive industrial conglomerate led by British metals magnate Sanjeev Gupta, is buying a US steel company for $320m as it pursues plans to invest $5bn in North America. The privately-owned group will purchase Keystone Consolidated Industries (KCI), which is headquartered in Texas and manufactures steel products including billet, wire rod and agricultural fences, from the Contran Corporation. The transaction will boost GFG’s footprint in America, where it reopened a steel mill in South Carolina this summer, and adds to a lengthy list of merger and acquisition transactions around the world by Mr Gupta’s growing business empire. It comes at a time when some US steelmakers are enjoying bumper profits as a result of tariffs on imports of the metal imposed by President Donald Trump.

Hmm, buying assets whose value is bolstered by what might be short lived tariffs doesn’t sound all that wise. However, that’s not the reason to wonder. This sort of buying spree can indeed, as above, work. The constraint is cash flow. Being able to service the borrowings while still also being able to restructure businesses. You’re able to do that and you’re golden. Hmm:

Suppliers to the steel tycoon Sanjeev Gupta’s rapidly growing empire have warned they are struggling to get credit insurance and are owed substantial sums. Five companies that supply goods and services to parts of the Gupta Family Group (GFG) Alliance’s British operations told The Sunday Times they were struggling to secure payment from the steel, commodities and energy conglomerate. One said it had outstanding balances totalling several million pounds. A small supplier to GFG’s steel plant in Newport, south Wales, said it was pursuing legal action. The credit insurer Euler Hermes is understood to have withdrawn cover entirely from suppliers to Liberty House, a collection of businesses under the GFG umbrella. Credit insurance protects suppliers against the risk of not being paid.

The way all of this works these days is that suppliers insist upon being able to gain credit insurance. That means they get paid even in the event of disaster. Not being able to gain such insurance means either paying cash – likely to bankrupt given capital constraints – or not being able to get supplies, meaning going bankrupt. No doubt this is just a little hiccup in a small part of the business down to some oversight in paperwork.

It’s just that the modern way for a company to go down is to not be able to gain credit insurance on its supplies – or rather, it’s suppliers upon it. No, obviously that won’t happen here. For one way out of that bind that doesn’t exist is to float some part of the overall business, loaded with more than maybe its fair share of the total debt….you get capital in from the flotation, get rid of debt and have it serviced by the now ringfenced operation. Hmm….

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