Sanjeev Gupta's Grand Designs Should Have Been a Warning
(Bloomberg Opinion) -- In the years when he traveled the world snapping up threadbare metal plants with money from insolvent supply-chain finance firm Greensill Capital, Sanjeev Gupta sold an enticing vision.
The rich world’s aging industrial base wasn’t destined to a future of losses, redundancy and out-competition by larger, more modern factories in Asia. Instead, it could transform itself in the white heat of technological change, preserving jobs and revitalizing declining towns while retrofitting polluting industries ready for a net-zero world.
At a meeting with Gupta in March 2018 — at a time when his GFG Alliance group of companies had already bought metal plants in Scotland, the U.S. and Australia — he was as full of bracing sketches of the future as a TED talk. At the same time, he was maddeningly vague on the sort of nuts-and-bolts detail that experienced managers need to keep their businesses running.
It should have been a warning. Gupta’s empire is now teetering. GFG told Greensill in February that it would be insolvent without its funding, according to a court filing on Monday. Gupta has hired advisers to help GFG secure alternative sources of financing, people familiar with the matter told Eddie Spence and Luca Casiraghi of Bloomberg News. A spokesman for GFG declined to comment for this article.
That outcome is a troubling sign for how the world will deal with other declining industrial assets as it decarbonizes. Most of the planet’s energy and industrial base needs to be replaced or renovated over the next three decades with less polluting substitutes — almost every car on the planet, every steel mill, cement plant and chemicals facility, plus coal mines and petroleum fields, which together employ millions.
The problems of pulling this off are going to be substantial, as my colleague Clara Ferreira Marques has written. The initial tremors are already causing turmoil. Australia has had six prime ministers since 2010, in large part because of the way energy politics have torn apart both major parties. Europe’s plans to develop carbon border taxes are threatening to pour fuel on the flames of the world’s simmering trade conflicts. President Joe Biden’s ability to pass major legislation depends on the vote of Joe Manchin, a senator from the coal-dominated state of West Virginia.
Gupta’s genius was selling the coming industrial revolution as a smooth process that creates winners but no losers, where governments just need to stand back and let innovation save the day.
The truth is something like the opposite. Five years ago, many of GFG’s 35,000 employees worked for some of the world’s biggest industrial enterprises — Rio Tinto Group, ArcelorMittal SA, Glencore Plc, and Tata Steel Ltd., among others. Such companies might be expected to help fund generous adjustment packages to support workforces when their jobs disappear. It’s unlikely that GFG Alliance, which doesn’t even have a single consolidated holding company to provide cross-guarantees to its diverse assets, will be so well-placed.
Gupta’s ambitions were always so vaulting that in retrospect their credibility always seemed in doubt.
Take his plans for the steelworks in the South Australian town of Whyalla, bought out of bankruptcy for a reported A$700 million ($545 million) in 2017. GFG intends to replace the aging blast furnace with an electric smelter fed by iron from a gas-fired reducing plant. Power would be supplied by a A$700 million solar, pumped-storage and battery project, while steel would be fed into a planned electric-vehicle manufacturing hub.
Any one of these moves would push the boundaries of what the most experienced and cash-rich operators could hope to achieve. Yet Gupta wasn’t proposing to pull off just one of these transformations. To breathe life into this Frankenstein’s monster, lightning would have to strike in the same place multiple times.
Maybe that bet will pay off. But with the withdrawal of Greensill’s cash machine, it’s looking dramatically less likely.
There’s no reason to doubt that Gupta, Greensill and the major companies that sold them industrial assets were sincere in their ambitions. Looking through the available accounts of GFG group companies, their pension funds and asset retirement obligations mostly appear to be as fully funded as they were when they were subsidiaries of larger groups. The same can’t be said of less secured obligations, such as redundancy payments and funds to support workforces through re-training.
The sad truth is that Sanjeev Gupta doesn’t have access to any special magic that the likes of Rio Tinto, ArcelorMittal, Tata Steel and Glencore aren’t able to wield. The governments in France, and Scotland, and South Australia, now preparing themselves to support workforces in the event GFG’s empire goes the way of Greensill’s, are doing the same thing they’d be doing if the assets had never been sold.
The difference is that all the social and political liabilities around the plants — all the things that don’t show up on a balance sheet, but nonetheless matter to major businesses hoping to maintain good long-term relationships with their host governments — will have been shifted from large, consolidated multinationals to a web of micro-companies unable to stand on their own feet. Governments will be left to pick up the pieces on their own.
GFG talks about itself as a “champion of sustainable industry.” If this is a model for how the world is going to deal with its stranded carbon-intensive assets, that boast is going to start sounding hollow very quickly.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.
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