The Indian-born businessman had been on a winning streak in Britain as an unlikely saviour of industries that many had given up on. He’d spent $1 billion in the previous two years on ageing industrial businesses discarded by Caparo, Rio Tinto and India’s Tata Steel.
Gupta’s Liberty House company and his father’s SIMEC shipping, energy and commodities trading operations were feeling confident about the Arrium bid. Gupta had been personally sought out to potentially replicate in Australia what he was doing in Britain. But then the devastating phone call came.
“We were totally back-footed,” recalls Gupta, speaking to in November amid speculation his sprawling industrial empire – which includes a bank – might have overextended itself after a huge acquisition spree since 2013.
It has left critics questioning whether he has the financial firepower to carry out his ambitious expansion program and make a decent return over the long term.
For the record, Gupta rejects any suggestion that he’s been going too fast.
Back in London, Gupta’s anger over the Arrium phone call subsided after a few hours, replaced by an unshakeable determination. He would not give up.
It was the same resolve he had drawn on 25 years earlier when his fledgling Liberty House company came off second best against Cambridge University. Gupta was an economics student in 1992 and living on campus in a residential college. The situation offered a tax loophole: because it was an academic institution, transactions conducted on the college telex machine were exempted from the British equivalent of GST.
So Gupta frequently used the telex to trade a range of commodities, including his first substantial deal – the sale of 2000 tonnes of steel to a customer in Nigeria.
The university authorities were unimpressed and eventually asked him to leave the dormitory because his commercial activities breached regulations. But the hunger for deal-making became entrenched in the Gupta psyche. “I love what I do,” he says. “Every part of it.”
Remembering the Cambridge experience, Gupta set about beating down the Arrium barricades.
“For two to three weeks no one would talk to me,” he says. “The unions said it was too late, everyone said it was too late.”
He flew back to Australia and pulled out all stops. Former Labor industry minister Kim Carr and steel industry veteran Ray Horsburgh were in his corner. “I went and saw every major creditor,” Gupta says. The federal government and South Australian government were also sounded out.
It was a frustrating couple of weeks. “At times I was sitting in my hotel room twiddling my thumbs,” Gupta says. “That’s not something I am used to doing. I don’t enjoy doing anything alone.”
Then the Korean consortium missed a deadline on financing as they negotiated with KordaMentha on the plans for Whyalla and the other businesses, which include electric arc furnaces and mini-mills in Sydney, Melbourne and Newcastle, and a national steel recycling business that handles about 1.2 million tonnes of ferrous scrap each year.
It was enough for Gupta and his team to prise open a gap. With KordaMentha’s blessing, the process was reopened and Gupta’s GFG Alliance bidding vehicle went all out, after some observers said he had been too low-ball in his original offer and caused the strife himself. Gupta upped his offer twice.
The midnight oil burned in KordaMentha’s Melbourne office on July 4 as exhausted lawyers and advisers went through the fine print. A binding agreement was signed with KordaMentha on July 5.
Without that weak spot appearing in the Korean offer, the 47-year-old Gupta, who has three children with his British-born wife Nicola, wouldn’t be enjoying the Australian summer and residing part-time in a mansion in Bellevue Hill, in Sydney’s east.
Persistence and determination won out. Gupta was ready to begin a Down Under version of his “green steel” strategy, in which plants employ old-style manufacturing of high value-added products but use scrap and recycled steel, and are eventually powered by renewable energy.
The Arrium assets were acquired for about $700 million. A relatively new financing firm called Greensill Capital, founded seven years ago by Lex Greensill, who grew up on a farm in Bundaberg, Queensland, was a key backer.
Among its innovative supply chain financing structures – which have also raised eyebrows – Greensill securitises the future income to be produced by industrial assets, enabling businesses to access that cash much quicker than usual.
Greensill had earlier worked with Gupta on deals in Britain and has been a consistent presence in about 30 GFG Alliance deals across the globe. Lex Greensill, a former Morgan Stanley investment banker, is well connected and was an adviser to former British prime minister David Cameron.
Gupta comes from a privileged background, with the SIMEC empire founded by his father Parduman K. Gupta having its genesis in India in the mid-1960s. One of Gupta senior’s first businesses was a bicycle manufacturer.
The Gupta family interests generate annual revenues of $US12 billion ($16.5 billion) and have a global workforce of 25,000 people. With the support of government grants in many cases, his eye-popping string of acquisitions has been accelerating.
Close to $US2 billion has been spent on acquisitions and capital investment in the past five years. His first big foray was just five years ago, when he bought the Mir steelworks in Newport, south Wales.
Gupta has received taxpayer-funded leg-ups in several countries, including Australia, with governments attuned to the vast numbers of jobs at stake in steelworks and industrial factories. The South Australian government had $50 million in cash on offer to the new owner of the Whyalla steelworks at the start of the sale process.
Gupta says businesses do sometimes need a leg-up in the initial stages. “When a child is born he’s not able to compete against men.”
KordaMentha partner Mark Mentha has been a corporate undertaker and restructuring expert for more than 30 years. He was first in the spotlight almost two decades ago for his handling of the complex dismantling of the collapsed Ansett airline.
Mentha has dealt with some tough customers in his time. “I was surprised at how hard he came back,” he says of Gupta after he had been rejected. “He’s a man who obviously knows what he wants.”
Mentha says having people from different walks of life on side, including Kim Carr and Ray Horsburgh, had helped Gupta’s bid. Horsburgh is a highly respected steel industry doyen and had a 15-year career as Smorgon Steel chief executive until a merger with OneSteel, which later changed its name to Arrium. Carr and Horsburgh championed the green steel approach, rather than the financing approach, says Mentha.
Mentha has a lot of time for Gupta, saying: “I think he’s very values-based in how he does business. He’s just a really decent guy.”
As the 18-month mark of the new Whyalla ownership approaches, Mentha can see that the strategy is a robust one: “He seems to be doing the right things.”
A four-year enterprise agreement with the workforce at the Whyalla steelworks at the outset provided extra confidence following the vigorous cost-cutting by KordaMentha during a 16-month administration after the Arrium business collapsed under total debts of $4 billion. “He’s got a runway there with the workforce on board,” Mentha says.
In essence, Gupta has saved a town, with more than 3000 people either directly employed by, or dependent on, the steelworks or the associated iron ore mine in the nearby Middleback Ranges. “There’s this symbiotic relationship between the steelworks, the mine and the town,” Mentha says.
Gupta is reasonably content with how the Whyalla steelworks is performing. “It’s dramatically better,” he says. “[But] there’s a long way to go. There’s a lot to fix and a lot of improvement needed.”
He has had a vast amount of experience in integrating new businesses into the Liberty and GFG Alliance stable. One was a small bank in Britain, known as Tungsten Bank. It was acquired in mid-2016, and has been rebadged the Wyelands Bank. He has also set up a financing arm called Wyelands Capital to provide competitive financing for industrial firms in a market where bigger banks have been reluctant to lend.
Some critics say he is moving too fast. The frequency of acquisitions has certainly been brisk. Gupta is already the biggest buyer of old industrial companies such as steelworks, having bought more than 25 businesses around the globe since 2013.
He put his foot on the gas in mid-October with an announcement that he had signed a conditional agreement to buy four of steel giant ArcelorMittal’s plants in Europe, which would more than double overall steel production and add 12,500 people to his workforce.
ArcelorMittal is selling the plants under an agreement with European Commission competition regulators to allow it to proceed with the acquisition of Italian steel company Ilva. The plants are in Galati, in Romania, and Ostrava, in the Czech Republic.
The acquisition also includes rolling mills at Skopje, in Macedonia, and at Piombino, in Italy. The purchase adds 8 million tonnes to Liberty and GFG Alliance’s global capacity, taking it to 15 million tonnes a year.
Gupta rejects the suggestions that he’s moving too fast, although he does concede that a partial sharemarket float, which would enable him to raise more cash, is on the cards.
Up to 40 per cent of a scrap steel recycling business in Australia could be listed in the first half of 2019, ring-fencing the best-performing assets of the local business, and he is examining similar plans for a partial listing of British and US steel recycling operations.
The sceptics believe a partial float might shine a harsher light on the inner workings of the GFG empire, which is funded by a mix of conventional and less conventional debt and for which consolidated accounts are not available because his companies are structured as a complex web of private businesses.
Some outsiders are incredulous at the pace of acquisitions and wonder how sustainable the operations might be if tougher economic conditions prevailed for an extended period.
One observer, who asked to remain anonymous, questioned how the operations would fare as interest rates rose around the world. “The tide will go out at some point.”
Mark Goodsell, national director of manufacturing at the Australian Industry Group, notes that Gupta has an ambitious agenda, and is overturning the accepted wisdom that China will be the world’s manufacturing centre.
“It’s ambitious in terms of the traditional thinking around manufacturing in Australia,” Goodsell says.
Advances in technology give Australian-based manufacturers a real chance to be globally competitive, says Goodsell, but cutting energy costs is crucial. “It’s the lack of policy certainty that is prolonging the pain.”
Being a private company enables Gupta to make long-term strategic bets, Goodsell says: “They’ve got different timelines and different drivers.”
Gupta says one of the important elements of GFG Alliance is that each business operates with a substantial degree of independence, able to make the right decisions for its own circumstance. Being under private ownership also enables long-term business building and gives a strategic advantage.
GFG Alliance devolves to local decision-makers, but with an overarching eye from above to ensure that the global empire is working with the various parts to enhance other operations if it makes economic sense. “We don’t operate as a mega-corporate,” Gupta says. “Every business has its own perimeter.”
The sheer geographic spread of the GFG empire means that Gupta has a punishing travel schedule, but that also brings time for strategic thinking. “I fly a lot. It’s usually a reflection time.” For long-haul flights he uses commercial airlines. For short, domestic trips he flies on a private jet.
The man of steel, as some have dubbed him, says he sleeps four to five hours a night and his mind is often buzzing.
“I would say I sleep less than an average person,” Gupta says. He is always full of ideas, and if a brainwave wakes him up he records it. “I will get up in the middle of the night and send messages to myself.”
Gupta says GFG Alliance gives people a sense of belonging, where they are part of a business built on the strong family values.
“That integrity, that culture, it’s very important,” he says. “I think it’s quite an endearing culture.”
Integrity was central to one of Gupta’s heroes, Mahatma Gandhi, the Indian leader who led the country to independence from British rule and was an inspirational civil rights leader. Gupta admires his patience and tolerance, and his ability to bring people along on a journey even though it might take years.
“The concept of bringing people along is very important,” he says.
Gupta hasn’t always been a model citizen. He was a boarder at St Edmund’s School at Canterbury in Britain and went through a rebellious phase in his senior high school years.
“My school years were very volatile,” he says, admitting to too much skylarking and not enough studying early on. He failed all his trial exams three months before the main exams in his final year. “That gave me a real shock,” he says. He regrouped and finished with A-grades all round.
Gupta had a head for numbers from early on – “I was always good at maths and physics” – but says his real love is studying the rise and fall of civilisations and the lessons they offer. “I enjoyed history the most.”
He regrets that he is too busy to read engrossing history books. “I don’t read a book from cover to cover any more,” he says, although he devours well-written, insightful pieces on a range of topics.
His precious downtime is spent with family, and he occasionally takes to Sydney Harbour on his 31-metre boat. “It is one of my indulgences,” he says. “I feel much more at peace with the world [on the water] than on the land; I love being on the sea.” He has ambitions of sailing around the world.
Gupta has a deep affection for Britain and believes it should follow through on the 2016 Brexit vote and separate from the European Union. He voted in favour of an exit: “I think Britain has a special identity.”
He has strong opinions about the importance of a country preserving and reviving its industrial base, and is committed to using renewable energy to provide the power to run these plants.
“It’s a no-brainer now as far as I’m concerned,” Gupta says. “We’ve had a strong conviction for a long time. We were on the journey and now we’re speeding up.”
Focus on renewables
GFG Alliance has ambitious plans in this area and in some respects aims to outdo renewables pioneers such as Tesla boss Elon Musk. Late last year Gupta made a decisive move after weeks of talks with Professor Ross Garnaut and the upper echelons of renewable energy firm ZEN Energy, of which Garnaut is chairman. It resulted in GFG buying a 51 per cent stake in ZEN Energy and rebadging it SIMEC ZEN Energy.
Gupta expects to begin construction of the Cultana solar energy project, which encompasses 780,000 solar panels near the revived Whyalla steelworks, early in 2019. The 280-megawatt solar project is the centrepiece of a $1.4 billion investment by SIMEC ZEN Energy in renewable energy projects in the Spencer Gulf region in South Australia.
The plans include a separate co-generation plant at the steelworks using waste gas, and pumped hydro projects at the nearby Middleback Range mining operations that supply materials to the steelworks.
SIMEC ZEN Energy is also planning the world’s largest lithium ion battery, which would surpass the large storage battery built by Tesla and French group Neoen near Jamestown in South Australia’s mid-north, which began operating last year.
Gupta says he and Garnaut hit it off immediately when they met. “There was an immediate association and friendship,” he says. “He’s quite a visionary. I see something of me in him in some respects.”
It was unusual for Gupta to join forces with any outsider – “I like to do things in my own way, in my own world” – but the strategic imperatives were consistent. He also likes the fact that Garnaut isn’t afraid to show serious ambition. The pair share similar views on the vast upside for large-scale renewable projects in a country so much richer in renewable energy resources than any other developed economy.
“We saw the Australian energy transition in much the same way,” Gupta says. “One thing I like about him is he has very big ideas.”
Garnaut, who headed a comprehensive climate change review for then prime minister Kevin Rudd almost a decade ago, says Australia should be a global leader in energy-intensive industries and is puzzled by the political angst that for a decade has been a handbrake on the formulation of a forward-looking, consistent energy policy.
“I don’t think there’s an example anywhere else in the world of the incoherence in energy policy in Australia at a federal level,” he says.
Having a large partner with deep pockets and a similar vision will enable ZEN to accelerate its plans. “It allows us to do more quickly the things that we were working on,” Garnaut says.
Gupta is horrified at Australia’s high electricity prices and expects that his renewable energy business will eventually be bigger than the former Arrium assets. “The problems that the country faces now is where we can step in.”
He is also puzzled why Australia hasn’t become more of a manufacturing powerhouse, given it has all the raw materials in the ground.
The country is known for its iron ore magnates such as Gina Rinehart and Andrew Forrest, and for global mining giants BHP Group and Rio Tinto. But digging it up and sending it to the rest of the world without adding some value doesn’t seem sensible to him. A country that gives up its industrial base is courting danger, he says, and at some point China’s demand for steel will lessen.
“The problem in the meantime is you’ve lost your ability to make steel,” he says. “One day it will turn.”
Gupta is also alert to the shifting sands in global trade and that Donald Trump-fuelled trade wars are likely to increase.
“I wouldn’t say this is a good thing in the long term,” he says, noting that most innovation and forward thinking happens when there is fierce competition. “I’m certainly not going to promote protection.”
He’s preparing for more volatility in the world economy, saying: “I think things are becoming more unpredictable.” The flood of information available in the digital world is contributing to it: “The more open the world becomes, the more volatility you will have.”