Liberty House : A passage to India     

Some call him a takeover tycoon. And they aren’t exaggerating. India-born British billionaire Sanjeev Gupta has bought more than 200 ailing industrial units in the U.K., the U.S., and Australia, and given them the kiss of life. “For me, distressed assets are like diamonds in the rough,” Gupta, executive chairman of British consortium GFG Alliance, tells Fortune India. “In life, if you find something that is undervalued and you bring value to it, that is the most exciting thing for me.”

Gupta, a self-made industrialist dubbed ‘Man of Steel’ in a BBC documentary, should know. He began his trading career from his college dorm when he founded Liberty House as a commodities business in 1992 while he was a student at Cambridge University. He first shot into prominence in 2013 when he bought a troubled steel mill in South Wales, and then went on to build a business empire largely by buying out many rusty old steelworks as he went on a multi-million dollar global acquisition spree. Today, his GFG Alliance—whose portfolio includes metal, engineering, real estate, and power generation operations—largely consists of troubled assets across 30 countries which it has bagged and turned around over the past five years.

Now, 46-year-old Gupta has set his eyes on India. His company Liberty House, a part of GFG Alliance, has submitted bids for four distressed Indian firms: steel companies Bhushan Power and Steel and Adhunik Metaliks, auto parts maker Amtek Auto, and ship builder ABG Shipyard. He is also in talks with two more steel firms, which he refused to name.

Gupta had dallied with the idea of opening shop in India before, but “got cold feet”. Now, with bids for some of the firms in the process of resolution under the Insolvency and Bankruptcy Code (IBC), he is determined. He plans to pump in $10 billion into India; of this, $5 billion will be spent on acquiring the firms under the IBC that the group has bid for. “We want to be relevant, we want to make a difference,” he says, sitting in a sea-facing hotel room in Mumbai during a quick two-day visit chock-ablock with meetings.

Gupta promises to bring in a new way of doing things when his businesses come to India. Liberty House is already changing the way steel is made in the U.K.—by recycling metal scrap for raw material and running furnaces at plants on renewable power as part of an initiative called GREENSTEEL. “We are a disruptor in every way. We have gone against the tide, we have reinvented how things should be done in every sector. Our outlook is generational, not short-term. It allows us to invest in things which we believe are investments for the longterm,” he says.

Gupta is not unsettled by the interest in India shown by steel majors such as ArcelorMittal and Nippon Steel, and Tata Steel’s renewed focus on the home market. He expects India to manufacture 300 million tonnes of steel in the medium term, leaving enough room for more players. The timing seems right for Liberty House’s entry. The domestic steel industry, which had been going through a slow phase due to low demand, looks set to pick up soon. “Among major steel-producing Asian countries, operating conditions will be the most supportive in India, because of the robust domestic demand and protectionist measures, despite a rise in raw material prices and new capacity,” says a Moody’s report on the outlook for the sector in 2018.

Gupta cites his 2017 acquisition of indebted Australian mining firm Arrium to justify his penchant for ailing businesses. “Look at our Australian businesses; to recreate it would cost you AUD 5-10 billion. But we bought it for AUD 700 million,” he adds. He has also bought a majority stake in Australian renewable energy firm Zen Energy and a troubled Glencore coal mine in Australia this year. GFG Alliance’s total investment in Australia comes to about AUD 2 billion.

Gupta’s confidence is understandable. After all, he made a bold bet and acquired an ailing 2 million tonne per annum steel plant belonging to Mir Steel in Wales in 2013. According to media reports, due to adverse market conditions, the new management had to halt production at the plant and lay off 150 workers on half pay, while allowing them to work elsewhere till the plant reopened. When conditions improved two-and-a-half years later, the workers rejoined and the plant began production. It was remarkable that the reopening happened on the day a meeting chaired by the then U.K. prime minister, David Cameron, to discuss ways to revive the ailing steel industry was underway.

Since then, Liberty House has been busy, acquiring assets or starting ancillary businesses to add value to existing operations. The more high-profile examples are global metals major Rio Tinto Aluminium’s hydro-power and aluminium smelting operation in Scotland, an engineering unit of business magnate Swraj Paul’s firm Caparo Industries, Tungsten Bank, vehicle pressings and assemblies manufacturer CovPress, and Tata Steel U.K.’s speciality steels business. Liberty House has a capacity of 10 million tonnes of various steel products in the U.K., where the group has spent more than $770 million acquiring distressed assets in the last five years. In the U.S., the group bought Essar Steel Minnesota and ArcelorMittal’s South Carolina steel plant last year. “Sanjeev is making a success of all the steel plants he has taken on,” says Gareth Stace, director, UK Steel, a trade association for the sector. “And with energy investments, the business is optimising mature assets or harnessing new technologies in order to generate low carbon, lower-cost power.”

All these businesses are a good fit for Gupta, who belongs to a well-known business family from Punjab. His grandfather ran steel mills; and his father, Parduman K. Gupta, had built a successful cycle business and went on to found SIMEC Group, the energy and natural resources arm of GFG Alliance. Today, the family’s global network of companies includes Wyelands, the financial services wing, and JAHAMA Estates, which owns and operates the real estate assets of GFG Alliance. The group is the fifth-largest landowner in the U.K. He says Liberty House expects to clock $15 billion in revenue this financial year and generate a cash flow of $500 million (Fortune India could not independently verify these numbers).

Gupta’s India plans range beyond steel. He says GFG Alliance is also looking at renewable power and financial services. Half the group’s India investment will be in growing these businesses and setting up the green power business and the financial services operations. “There is going to be shrinkage of capital in India in the short to medium term… There will be an immense opportunity to bring in Western capital,” Gupta says. “[Entry into] power sector will be more organic since there aren’t acquisition opportunities in renewable power. Financial services will be a mix of organic growth and acquisitions.”

Gupta knows the challenges the group faces in the country. “India is very different from anywhere else in the world. It has great opportunities, but even greater challenges. It requires a lot of bandwidth to operate in India, which is very frustrating. Even now, there are risks that things will not get reformed the way we expect them to,” he says. Gupta is referring to the IBC launched in 2016 to speed up and simplify the insolvency and bankruptcy proceedings. It has had a chequered record so far, as disappointed bidders and defaulters began going to court against the decisions and provisions of the bankruptcy code.

Liberty House had emerged as the highest bidder for Amtek Auto, ABG Shipyard, and Adhunik Metaliks. But due to a $2.8 million outstanding loan to Exim Bank, its bids had failed and the matter moved back to the National Company Law Tribunal (NCLT).Gupta says Liberty House has cleared the dues and is in the clear now. Also, its bid for Bhushan Power and Steel, which came after the deadline, was initially rejected. But in April, the NCLT’s principal bench in New Delhi directed the lenders to consider the bid.

Experts say companies that acquire distressed assets won’t find it easy to turn them around. “It is very difficult,” says Siby Antony, chairman and managing director, distressed assets resolution business, Edelweiss. “Besides figuring out what is the sustainable amount of debt that can remain with the new buyer... one has to plan out the actual revival of the stressed company itself.” He says the biggest issue is financial creditors and the kind of haircut given to their loans. “And if you don’t take other stakeholders like operational creditors along, it becomes very difficult.”

The lack of decision-making is the biggest flaw that Gupta sees with India’s bankruptcy law. “The problem is India is not a country where decision-making is decentralised. The culture is not one of decision-making, so decisions keep getting pushed up higher and higher. The concept of bankruptcy resolution is to find a solution outside the court but within the legal framework,” he points out.

However, Gupta is still optimistic. He believes that economic reforms will continue in the country and doing business in India will become easier over time. “There always comes a point of flux,” he says. India, with its large young population and a relatively unevolved economy, is at that point, Gupta believes. And he’s determined to be a part of that change in India.

(The article was originally published in June 2018 issue of the magazine.)