Monday , April 19 2021

Liberty Steel feels the heat after government rejects loan plea

Concerns for the future of Liberty Steel and its 3,000 UK workers have grown after the government rejected its parent company’s plea for a £170m rescue loan.

The rejection has added to the pressure on Liberty Steel, part of the business empire built up by the industrialist Sanjeev Gupta. Gupta has been urgently seeking extra funding for the business in the three weeks since the collapse of a key financial backer, Greensill Capital.

A union source said the prospect of Gupta finding new funding to replace the cash lent by Greensill appeared distant given the perception of high financial risk and similar concerns over corporate governance.

Government officials have readied a plan to step in to keep Liberty Steel in operation if it is forced to enter administration, after writing to GFG Alliance rejecting the request for money to cover its need for cash to run its operations. Among the options under consideration is a similar strategy as that used to save British Steel in May 2019, when an official receiver, a government employee, took control of the company while it sought a buyer.

It is understood that the government refused the loan because ministers had concerns over the opaque corporate structure used by GFG, as well as whether UK taxpayer money would end up funding operations in other countries.

A source also highlighted that the reported £42m cost of a house bought by Gupta and his wife in August 2020 would have covered a significant portion of the £170m requested from the government.

GFG, the Gupta family group, owns a complicated network of companies with interests spanning from steelmaking businesses in South Yorkshire and Australia, to an aluminium smelter in Scotland and a separate energy company. GFG Alliance employs about 35,000 people around the world, including a total of 5,000 in the UK. About 1,000 of the Liberty Steel workforce are currently on furlough.

Gupta is not yet thought to have secured a standstill agreement with administrators of Greensill Capital, which had lent GFG’s various companies as much as $5bn (£3.6bn).

Kwasi Kwarteng, the business secretary, on Thursday told parliament the government was “looking at all options to see what we can do” to secure the future of Liberty Steel and said the government hoped to preserve it “in its entirety”.

However, it is thought that ministers will not step in until the operations are placed into administration. GFG’s corporate structure would add to the complexity of any rescue, with multiple commercial entities over 14 UK sites.

Greensill, which funded Gupta’s empire, was founded by Lex Greensill, an Australian banker who worked closely with the government when David Cameron was prime minister. The Sunday Times first reported that the Australian gained access to as many as 11 government departments and agencies to pitch supply chain financing arrangements that were later a hallmark of Greensill Capital.

Cameron was cleared of breaching parliamentary lobbying rules following a probe by the lobbying registrar. He worked as an advisor for Greensill Capital after leaving politics and was a shareholder in the company. The Labour party has called for an inquiry into Cameron’s role lobbying on behalf of Greensill. Rachel Reeves, Labour’s shadow chancellor of the Duchy of Lancaster, said Cameron faced “very serious questions” about his conduct in relation to Greensill during and after his premiership.

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A government spokesperson said: “The government is closely monitoring developments around Liberty Steel and continues to engage closely with the company, the broader UK steel industry and trade unions.

“The government has supported the steel sector extensively, including providing over £500m in recent years to help with the costs of energy. Our unprecedented package of Covid support is still available to the sector to protect jobs and ensure that producers have the right support during this challenging time.”

GFG Alliance declined to comment on the talks with the government or with administrators for Greensill.

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