This morning in metals news: copper prices gained momentum Wednesday; the rival of German steelmaker Thyssenkrupp rejected the idea of an alliance; and a Pakistani steelmaker is looking to ramp up its output amid a construction spike in the country.
After considerable speculation about the fate of two said-to-be strategic steel mills in northern France — left over from the rump of British Steel — Sanjeev Gupta’s GFG Alliance/Liberty HouseGroup is reported in the Financial Times as being approved to take over the two plants.
The French had refused to allow their sale to British Steel’s buyers, the Chinese Jingye Group. because of its unique role in supplying rails for the French high-speed rail network and Paris Metro.
The plan will see the Hayange mill in Moselle, which manufactures rails, to be supplied with steel made from recycled scrap at the Ascoval plant in Saint-Saulve.
As a result, Liberty will bring the two together as a combined business.
The group’s largest acquisition to date is the $500 million purchase of Rio Tinto’s Dunkirk aluminum smelter in 2018. The purchase marked a move into an industrial segment in which the group had little prior experience. However, Liberty arguably had much more experience than many private equity companies that buy into assets in which they often have little or no experience.
The smelter operated profitably last year.
Questions still remain, however, over the level of debt and the mechanism used the secure it. In part, the mechanism includes a conventional $350 million loan from a consortium headed by Bank of America.
But in addition, the Financial Times reports, Gupta raised a further higher-risk debt against his stake in the project through BlackRock in January 2019. He secured a $110 million, two-year loan to a holding company above the smelter. The loan included an eye-watering annual interest rate of 14%.
From ‘little known’ to ‘powerhouse’
Impressive as Liberty Group’s rise has been — and let’s face it, we all love a story of entrepreneurial flair — for every success, we have a dozen stories of failure.
In little more than five years, the Financial Times noted, Gupta has gone from a “little known commodities trader” to an “industrial powerhouse.” His industrial empire features $20 billion in annual turnover and 35,000 employees, covering metals, mining, renewable power and more.
Furthermore, his businesses are based across Europe, Australia, and the U.S. Keeping track of such a diverse geographic spread, let alone industrial activities, makes for a challenging management environment.
But it is Liberty’s financial arrangements that have raised the most questions.
Much of its acquisitions are based on often opaque receivables finance structures at high rates of interest.
For example, one of the group’s businesses is InfraBuild, an Australian steelmaker and recycler. Investors in the group are charging the company 12% interest on loans, according to the Financial Times.
A receivables facility three times the size of the €740 million deal price funded Liberty’s purchase of seven European steelworks from ArcelorMittal last year.
The Financial Times reports public filings show this €2.2 billion debt facility could incur up to €660 million of total interest payments. That and other potential costs pose a significant ongoing drain on the group’s profitability. This is particularly relevant as nearly all GFG’s purchases have been for turnaround — that is, previously loss-making projects.
Such rapid growth and such opaque and complex financing arrangements may be less worrisome if supported by transparent financial reporting.
The group claims, however, refers to its status as private enterprise. As such, it argues it is not obliged to reveal granular detail. In short, the complex structure of its intercompany loans and sources of finance are not the market’s business.
But reports of slow payments to suppliers suggest a business in which multiple turnarounds are challenging.
It was never going to be a straightforward takeover.
India’s Aditya Birla Group as the owner of Hindalco — and, therefore, Novelis — cemented its position as the world’s largest producer of value-added aluminium products with the completion of the USD 2.8 billion acquisition of Aleris last year.
However, approval from the U.S. Justice Department has been pending ever since the deal was announced in March last year.
This morning in metals news, President Donald Trump said the travel suspension announced Wednesday night does not include trade (despite seeming to indicate as much during his televised speech Wednesday night), shareholders have approved the merger agreement for Cleveland-Cliffs and AK Steel, and Cleveland-Cliffs’ CEO said a tariff loophole could lead him to close a steel plant in Butler, Pennsylvania.
This morning in metals news, arbitration fell in favor of the Department of Justice vis-a-vis the proposed merger of Novelis and Aleris, January steel shipments rose 5.6%, and copper made gains off of multiyear lows.
Before we head into the weekend, let’s take a look back at the week that was with some of the metals coverage here on MetalMiner, including: oil prices, global steel production, Chinese steel stocks, U.S. automotive sales and more.
After 10 months of many false starts and tens of millions of pounds of taxpayers’ money pumped into the company to keep it going, the purchase of British Steel’s U.K. assets at least appears on the verge of completion next week.
This morning in metals news, the U.S. Court of Appeals for the Federal Circuit ruled to uphold the constitutionality of the Section 232 statute, President Donald Trump has decided not to impose tariffs on imported titanium sponge and U.S. Steel closed on the purchase of POSCO-California Corporation’s 50% interest in USS-Posco Industries.