Sanjeev Gupta of Liberty House: Salvager of distressed assets

Liberty House founder Sanjeev Gupta on the formula behind turning around firms successfully and his diversification strategy


Liberty House founder Sanjeev Gupta says power—renewable power—and financial sector are two sectors his firm in interested in, in addition to financial services. Photo: Shendrew Balendran/Mint
Liberty House founder Sanjeev Gupta says power—renewable power—and financial sector are two sectors his firm in interested in, in addition to financial services. Photo: Shendrew Balendran/Mint

Singapore: In April, as another round of obituaries were being written on the British steel industry, Liberty House founder Sanjeev Gupta was taking ownership of the Dalzell and Clydebridge plants in the UK from Tata Steel Ltd.

For him, the handover marked “the beginning of a new era for these plants, for Scottish steel and for British steel as a whole”.

“We’ve kept our word—work will get underway again at these plants this month-end,” Gupta said in an interview at the company’s Singapore office in Asia Square Tower, overlooking the city-state’s port.

Liberty House, an industrial and commodities group, has operations in London, Dubai, Singapore and Hong Kong.

If Gupta, 44, can turn around the plants’ fortunes, he will convince doubters that the British steel industry can survive despite huge overcapacity, which has resulted in the closure of several plants across Europe.

When Gupta re-opens the two plants later this month, he will buttress his reputation of salvaging distressed assets. His group re-opened the Newport steel mill in South Wales last year after buying the facility in 2013.

His confidence in getting this plant functional is best demonstrated by his move to retain all workers at half-salary for two years, even as the group upgraded the plant to begin production again.

In December 2015, Liberty took over the advanced engineering business of Caparo Industries—formerly owned by India-born business magnate Swraj Paul—when the industrial group went under. In the process, he managed to save more than 600 jobs.

At the same time as Gupta was securing the Newport steel mill, his father bought the coal-fired Uskmouth power station, which is close to this plant. He is working towards converting the fuel source from coal to biomass. His father’s business also bought an equity stake in the offshore Tidal Lagoon project, which is building renewable tidal power at Swansea Bay.

The aim is to provide power to the Newport steel plant as well as other steel facilities in the UK from both the biomass plant and also the upcoming Tidal Lagoon project. The businesses are set to be further intertwined, as Liberty’s new plants in Scotland will produce turbine castings, steel towers and wind turbines for the renewable tidal power at Swansea Bay.

Amid downbeat headlines about the steel industry, the Punjab-born entrepreneur claims steel could make Britain an industrial nation again.

Gupta says his formula could enable the nation’s plants to counter cheap steel imports from China. “UK mills should move to new furnaces that can recycle scrap steel, and not produce new steel. We (UK) export 7 million tonnes (mt) of scrap steel,” he said.

The steel sector is a late addition to Gupta’s business, which began as a commodities trading firm that he had kicked off as a student at Cambridge University.

Gupta, who moved to the UK when he was 13, said his earliest memories of India are the steel mills and engineering plans his father owned. “I was exposed to this business…my dad used to take us to plants. He had plants in India and Nigeria. He had engineering businesses in Ludhiana primarily but also other parts of the country like Pune, Delhi and so on. These were small steel mills and engineering, bicycle plants,” Gupta said.

When he was 13, he visited his brother, who was studying in the UK, and decided to stay back, forcing his parents to enroll him in the same school—St Edmund’s College in Canterbury. After school, he took two years off, working for his father, mainly selling bicycles, and a considerable chunk of this time was spent in a plant in Turkey.

Among his father’s businesses were Victor Cycles, which had a manufacturing facility in Turkey. He came back to the UK and signed up to study economics at Trinity College, Cambridge.

“While I was at University, I started Liberty. And it was originally aimed at our own family businesses in India and Nigeria and so on. I was basically trading products for my family’s business—buying everything from commodities, FMCG (fast-moving consumer goods), engineering, metals, consumer goods and even dried fruits, selling in countries such as Nigeria. Our family’s wealth was largely created from Nigeria,” he said.

Gupta was soon trading £1 million worth a day from his dorm room. By the time he had finished university in 1995, Gupta said Liberty was ‘well on its way’, and the commodities trading firm had already hit “the initial exponential growth phase”.

“We were building businesses left, right and centre. Nigeria was there but we grew in West Africa, we grew in the Middle East, we grew in Asia. We were adding offices everywhere,” he added.

In the past 25 years, the Liberty Group has diversified from commodities to general trading, and first consolidated under three main sectors—steel, metals and agriculture. In 2007, Liberty Group opened a hub in Dubai to oversee Africa and West Asian operations.

From metals and steel based trading, the group ventured into steel manufacturing in 2009, when it began buying steel plants in Africa. A year later, it expanded to Asia, setting up a regional headquarters in Singapore. In 2012, it set up another hub in Hong-Kong for its China play.

“So, that was the journey for Liberty. Started as a general trader, honed in on steel, agri and chemicals, fertilizers and then began focusing on steel and then we added metals on top of that,” Gupta said.

The Liberty Group was also in the news recently, when it bid for unprofitable plants put up for sale by Tata Steel UK. The move also raised questions on the group’s complex structure, especially related to governance of the group of companies controlled by Gupta and his father, and the relationship they share. The companies controlled by Gupta and his father operate under the ‘Gupta Family Group Alliance’, and often work together.

Industry watchers have also questioned Liberty Group’s ability to finance deals such as buying Tata Steel UK.

Asked about these concerns, Gupta pointed out that Liberty Group had sales of more $3.5 billion. “These numbers are from March 2016, and the current numbers for 2017 are a multiples of this, especially on the Ebitda. We’ll have profits of over $100 million this year from Liberty Industries alone—which consists of the steel and engineering businesses.”

Ebitda is short for earnings before interest, taxes, depreciation and amortization, an indicator of operating profitability.

“The steel group has six different plants in the UK, and our engineering arm acquired from Caparo Industries basically makes almost everything a car requires, and so we are a large supplier to all the automotive industry, defence, renewables. We’ve cleaned up the businesses that we bought from Caparo, and the turnaround process has been seamless. Our engineering arm is also set to announce some acquisitions soon,” he said.

On the Gupta Family Group Alliance, he said Liberty companies worked closely with Simec Group, controlled by his father, and clarified that there were no cross-holdings. Simic has interests in shipping, industry, mining, energy and commodities.

“I am not directly involved with any of my dad’s companies, but we support each other. The other relationship is that Simic will be part of my inheritance.”

But outside Liberty and Simic, the Gupta Family Group Alliance also has an investment arm—CFG Investments, which has interests in property and banking, among other sectors.

“This is our family business. We have a large property portfolio, we have ambitions to become a property developer, and we recently bought a bank. We hope to take management control of this bank next month (October).

“The Bank of England is very particular about who they let in to the banking world in the UK. We passed through all the hurdles and now we’re in the final finishing touches to get control. And this bank will focus singularly on trade. They’re not allowed to bank us directly as per regulation but they can bank our customers. This is in my opinion, going to be the fastest growing part of the group in due course,” he said.

“The synergies are very clear. Steel is not a perishable commodity. So, all has to be recycled. And it can be done domestically—you’re not exposed to any commodity cycles, price cycles. So, this is where the alliance comes together—basically, energy comes from Simec’s side and steel processing and scrap and so on comes from the Liberty Steel side,” he added.

Gupta also pointed out that it was this interdependence between Liberty Group and his father’s companies under Simec, that would make his plans of buying out Tata Steel’s UK assets viable.

“For now, the Tatas have announced that they have paused the sale of the UK operations. But it is public knowledge that we are in discussions with them for other businesses that we can execute jointly in oil and gas pipeline, engineering… Regarding Tata Steel UK, one of the main problems for any buyer is the pension liabilities. Once the pension problem is solved, then I suppose the Tatas can decide which way to move,” he added.

Following the global financial crisis in 2008, Gupta, who had been living in Dubai, moved back to London. While the group’s commodity business is still based in Dubai, Gupta said that on the assets side, the West, including Australia, offered more opportunities post the crisis: “Here, the assets have been built—they just need to be reshuffled,” he said.

Gupta also said that Liberty was keeping its options open on a listing.

“If we list, it is not to raise equity—we have a reasonably large equity, and we are building equity to grow our businesses. The likelihood is that we will list parts of the business and not the whole group—maybe list the more mature ones like financial services perhaps or engineering or renewable energy. Renewable energy is the perfect business for listing. Anything with a fixed growth and income is good for listing,” he said, while adding that the group would look at London, Hong Kong exchanges for the potential float.

“Renewable is one sector which goes first. We are in active discussion with banks which are advising us on this,” he added.

At the same time, irrespective of the listing timelines, Gupta said the group had just begun its journey, and was fully equipped to finance deals such as the potential acquisition of Tata Steel’s remaining steel assets in the UK.

If the deal with the Tatas fails to come through, the group is keen to look at acquisitions elsewhere, he said, adding that it would scout for companies across steel, engineering and financial services. “The commodities sector will mature, and it will not grow dramatically, and will be a comfortable business,” he added.

Gupta and his wife Nicola have three young children, and the oldest is four-and-a-half years old.

The man referred to as the “white knight of Britain’s steel plants” or “UK steel’s great hope” said he took his first holiday in years last week when his wife accompanied him to Majorca in Spain. “Before that, my last break was a two-week holiday for my honeymoon.”

Edited excerpts from an interview:

What are your plans for India – there are reports that you plan to buy steel mills there?

Across all four sectors of our business, we are looking at India. While we are interested in steel in India, we are very cautious. Time will come for India, but right now, steel is the most stressed business in the country. The other sector is engineering. We are pursuing a couple of options. Those are not massive M&A (merger and acquisition) transactions but generic investments, sort of bolt-ons to our existing businesses. Power—renewable power—and financial sector are two sectors I am very interested in. We are also interested in financial services.

How can steel production in the UK be competitive?

Steel scrap has no price. So, when price of steel goes down, scrap has to go down even further. It is entirely correlated to steel. Once you’ve done the capex on the Tidal Lagoon project, it’s a 120-year project right, your energy is basically free once you’ve done the initial investment. The price of collecting scrap is nothing—it is just a few bucks. You melt scraps and make steel. This model is not new—I’ve not invented it.

Look at Nucor Corp. in the US—they use electronic arc furnaces to melt scrap steel, and they have been making money with this model. When you are making money from melting scrap steel, it is a non-cyclical business. The Liberty Group is into engineering—we will, therefore, produce steel for our other businesses—as we are adding significant value. In the US, 75% of steel is made from scrap; 75% of steel in the US is now recycled. Even automobiles—all the high-end applications—are supplied by recycled steel.

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