SPOKEN – Business Update Three

SPOKEN – Business Update Three

In this edition Sanjeev gives an update on the activities across the GFG Alliance in the wake of the collapse of Greensill Capital.

He talks about how the four new subject expert directors that recently joined the LIBERTY business will be focusing on re-financing and restructuring activity and gives an update on progress made so far.


Show Transcript:
0:00:00JINgleSpoken from GFG Alliance.
00:00:04Chloe TilleyHello and welcome to Spoken, the podcast for GFG Alliance colleagues across the world.  I’m your host Chloe Tilley, and on this episode, we’ll continue to look at the business’response since the failure of Greensill Capital. And we have some news of some senior appointments.
00:00:19ChloeJoining us, as always, is Sanjeev Gupta, Executive Chairman of the GFG Alliance. Hi Sanjeev, how are you?
00:00:25Sanjeev GuptaHello Chloe.  I’m okay.   Not bad.
00:00:27ChloeNow Sanjeev, last time you mentioned how the strong markets are helping GFG. Can you give us an update on the parts of the business that are continuing to perform well?
00:00:36SanjeevActually Chloe, you know it is incredible.  Every time we speak, we seem to be breaking new heights and new levels.  Prices have basically cost all-time highs in Europe, hot rolled coil, for example, is over €1000.  It’s never been that high before ever, even in 2008.  Iron ore is up 130% and is again it’s at a record high.  Aluminium is up 50% at $2500, this is the highest for a decade.  The markets are very much in a super-cycle so that is something which is extremely welcome and especially in the given situation it’s helping many of our main businesses to perform exceptionally.
00:01:15ChloeNow it’s not all a rosy picture, of course. What’s the latest on the areas of GFG that are struggling?
00:01:21SanjeevWell, our main big performers are basically our upstream businesses in Europe, which is Ostrava and Galati and in Australia our Whyalla business, especially mining business and InterGroup.   These are the 4 real forces that are driving the performance in the group.  Some of the downstream businesses especially in automotive and aerospace are suffering for various reasons.  Aerospace really mainly because of Covid and that’s not going to come back for a while, so that’s a tough situation.
00:01:50SanjeevAutomotive also has taken quite a big hit even before Covid, because of the changing from diesel as well.  And they’re going through some fundamental changes anyway moving towards EV’s and so on, so there’s a lot of change happening in that industry.
00:02:03SanjeevIn some other businesses, let’s say UK steel even to some degree, French steel, there is very strong prospects, but we need more capital to those businesses.  With that capital those businesses could do incredibly well given the current market conditions.  We have some limitations in the current situation where we are finding our way out of this Greensill situation.  So I’m confident those businesses will do well, but right now the big performers are the 4 I mentioned.
00:02:32ChloeNow, an important piece of news is the appointment of four new board directors for Liberty Steel.  Tell us more?
00:02:38SanjeevYes, Chloe actually it’s a monumental moment for GFG, it’s a big step.  I think it’s not misaligned to our journey anyway. I was, as you may remember from previous discussions, in the process of, we had set up our board of independent directors and so on and we wanted to get our governance, our issues objectives and everything stronger and better.  These 4 appointments are basically a continuation of that journey.  So, we have brought in 4 directors of which 2 are independent. One is a chief restructuring officer who will act independently, and his job will be to really make sure the company does the best in terms of restructuring itself, refinancing itself.  Looking after all the stakeholders and negotiating. So being the front guy.  He will chair the restructuring committee.
00:03:23SanjeevHis name is Jeff Stein. He has a lot of experience doing this for very large companies, all his career he has been a CRO.   Then we have a new position which is the CTO, the chief transformation officer.  This is Jeff Kabel.  Jeff has a lifetime of experience in steel and ferrous metals.  He was the head of JP Morgan’s ferrous desk, I think from inception to the end.   He is very well versed with the UK in particular and its problems and the steel industry’s challenges.  He has good interactions with the government, other stakeholders there.  So, while his job will be to look at our entire steel business and see how we can improve and what’s wrong, what makes sense, what doesn’t make sense.  His views on the markets will be very valuable, but also his key focus will be the UK itself which is of course a very important part of my overall strategy.
00:04:18SanjeevThen we have Iain Hunter.  Iain Hunter is no stranger to some of us.  He used to be a CEO for Weylands Bank, and his expertise being, having spent all his life in regulatory bodies, his experience is we need to make sure that we look at the situation right now, all our boards globally in terms of how they constitute it. What responsibilities they have.  Director’s duties.  Making sure we’re doing the right things. Nothing is falling between the stools. So his role is to focus on governance within the group.
00:04:49SanjeevLast but not least, we have a new CFO which I’m very excited about.  But before I talk about him, I would like to say a big thank you to Mr V Ashok the outgoing CFO.  Ashok has been invaluable, especially in this difficult Covid period, being stuck in India and trying to navigate the world from there.  Unfortunately, he has to stay back because things in India are not getting better which is quite scary and he needs to be close to his family and look after his family.  So, he’s been replaced by Deepak Sogani.
00:05:16SanjeevDeepak is already within the short space that he has been with us, already won a lot of hearts.  He is a perfect fit.  He’s a perfect fit culturally first of all, which is very important.  But also, he has a lot of expertise in steel, and he has got a lot of experience in cash flow management and working in difficult situations doing restructuring and so on.  So, he was a very good pick, and we are very lucky to have him.
00:05:40SanjeevThese 4 together form the restructuring and transformation committee and their role will be to basically navigate the company and the group into a new future which we are calling Liberty 2.0, in which we will have a much leaner and much sharper business and a much better governed and much more transparent business.
00:05:58ChloeSanjeev, we have all seen the dire situation regarding Covid in India. Difficult to watch for people around the world. What are your thoughts?
00:06:08SanjeevObviously, I’m from India and still have a lot of friends and family there, and it’s heart-wrenching.  I mean that scary to put it in a single word. I’m very concerned my heart goes out to all my first of all employees, but also all Indians to really be as careful as you can.  Try to navigate this, it’s difficult to give words of comfort when people are in the middle of this crisis, but I definitely am watching and monitoring the situation very carefully.
00:06:41SanjeevI think it has risks also for the rest of the world, so it’s something which is very important for everybody to see how we can mitigate. And my sincere and best wishes.  I hope things will turn for the better soon.
00:06:55ChloeOkay, thanks Sanjeev.  Next, we’re going to look more at refinancing.
00:07:02ChloeSo, Sanjeev, I understand in terms of refinancing there’s some good news from Australia?
00:07:07SanjeevIndeed, actually even more than the refinancing.  I think first of all it’s an indication or rather a proof of our business model.  When I first went to Australia and bought the business while it was on its knees, it was losing a lot of money.  It was slated for closure.  Most people, almost everybody thought it was impossible to fix it.  I disagreed.  I saw an opportunity there.
00:07:33SanjeevWe’ve worked incredibly hard, and all credit goes to the specialist team which has been deployed to turn the business around, and of course all the local management and the local workers who work tirelessly to turn that business around.  It is now profitable, which is why it was relatively easy despite all the noise and all the chaos which Greensill’s collapse caused for GFG, it was relatively easy to get refinancing.  We had many suitors which was won in record time.  We agreed the financing now, the final diligence and the paperwork is on.  And within the next few weeks that business will be refinanced, and the creditors will be paid in full.  So I think that is a great testament to our business model.
00:08:13SanjeevMy intention now very much is on the UK and Europe, where we need to achieve refinancing.  UK a bit tougher because it was, UK business, each and every business in the UK that I bought was basically again, like Whyalla, was shut or shutting or losing money. So those businesses are still on a journey, but in a very good position now, especially with current market conditions.
00:08:36SanjeevIn France, in Ascoval, also again a great business, nothing wrong with the business itself, but needed a bit more capital given our constraints at the moment. So we have impatience but I’m confident we’ll find the extra funding needed.  But in the meantime, just to be prudent and also to make sure we do the best for our businesses and our employees but also exploring options for partnerships or sales to see what comes through and there is a process going on there as well.  But again, the businesses are a very good businesses, I have no doubt in my mind, one way or another it will go forward in a positive way.
00:09:08ChloeJust sticking with Australia for a moment longer if we may, you briefly mentioned timeframes there.  Tell us little bit more about that and what this means for the business in Australia?
00:09:18SanjeevSo, timeframe-wise we have 3 or 4 weeks to go in terms of our agreed target dates for the refinancing to be complete with our financiers.   These things sometimes do slip but at the moment so far so good, it looks on track.  What this means for the business is that it will have refinanced Greensill completely and its creditors so it will be free of those shackles.  It will have a financier which we’ve worked with many times before and have a very strong relationship with, so it will be a good relationship.  It will have some headroom to grow.  Anyway the business is doing incredibly well at the moment especially with iron ore prices well above $200, that’s a good strong cash flow.  So, I think they will have opportunities to focus again on development and growth.
00:10:03ChloeDo you have any more updates on talks with other prospective lenders?
00:10:07SanjeevI mean it’s very heartening to see the amount of interest that has been, we’ve been inundated by offers to help and to finance, because people recognise that the markets are good, our businesses are good.  Some of them, okay, may be tougher, but still good.  May be need a little bit longer horizons, but many of them actually doing incredibly well, performing the best they’ve done ever historically.
00:10:34SanjeevSo we have a lot of interests for funding.  We are obviously, even for Australia we had a long list of suitors, which we chose from.  Now our attention is focused on the UK and Europe and again I’m very confident we will achieve.  In the UK we need working capital to get the business up again, so it’s a bit of a longer road in terms of refinancing, but what you need first is working capital. That working capital has been offered. We’re doing those business plans.  We will submit that to the financiers and the creditors, get agreement, so that’s a different journey.  But in our continental European businesses I’m very confident that we will be able to achieve refinancing more or less similar to what we’ve done in Australia.
00:11:11ChloeLast time we spoke about your discussions with Greensill’s administrators, Grant Thornton, you were looking to find positive ways forward. Has there been any progress?
00:11:21SanjeevSo, there is constant dialogue and some sharing of information.  It is complicated.  There are many stakeholders, many different creditors.  Remember this was not a group, it was a group in the making.  It was a bunch of different companies around the world doing different funding deals with Greensill who distributed them to different bodies.  So, it’s not like there’s a big group lend and you can easily achieve this.
00:11:44SanjeevBut there is positive discussions and we continue to keep each other informed and hopefully make progress.
00:11:49ChloeNow, I understand that GFG are exploring options for some renewable energy projects in Australia. What’s happening here?
00:11:56SanjeevWell Chloe this is critical.  The future of Whyalla is green steel.  We have the best mining magnetite resources possibly in the world, which we have very exciting projects to develop. We already have put our decent sized producer of magnetite, which is what we need for hydrogen steel.  To make hydrogen we need renewables. We need to expand renewables in a massive scale in Whyalla to make that happen.  The first project of this was the Cultana project, which I was very proud of.  That project has been basically from a project development point of view, completed.  We’ve got a lot of approvals, took a lot of time, there were some complications with all the approvals.  So essentially it is, shovel ready.
00:12:34SanjeevBut given the current situation and given some other changes, we are looking for new partners to help us expedite those projects. So, it is no way me going back from that strategy, on the contrary I want to expedite it.  So, we are looking at partners.  I would like partners.  I would prefer to have other partners but in any case, we will remain involved anyway because we there will be enough takers, or potentially enough takers for our business.  And behind this Cultana I want to build a much bigger solar farm, which I’ve previously talked about. But it’s important now for it to get done, so that’s why we’re opening it up to offers of partnership.
00:13:06ChloeSo why have you made this decision particularly after that new funding has been agreed for the business in Australia?
00:13:12SanjeevBecause I want to expedite the project and I think this is time.  The world is now more and more so, especially, every day that passes the world is more and more aligned to green steel.  This is something which I take pride in the fact that I started this, more or less, journey globally back in 2014,15 when I started talking about green steel. There was a lot of naysayers.  Over time they have become less and less.  Even in Australia, I think there’s a lot of support now for green steel, and hence I want to expedite.  Especially as we have come out of this Greensill crisis and we have our 2.0.   Within that I really want to focus on green steel and Whyalla is at the centre of that, and hence I don’t want to delay this project, I want to expedite it.  So having a partner will help us get more funding for the project and do it quicker, rather than doing it at our own pace, which will take longer.
00:14:00ChloeAlright, in a moment, we’ll look at other parts of GFG coming under scrutiny.
00:14:08ChloeNow GFG in the Czech Republic and in Romania have been in the spotlight over the sale of carbon emission allowances. Sanjeev, can you just clarify what’s been happening?
00:14:17SanjeevSo, Chloe, every business in the EU has allowances for carbon emissions, which are basically sized against their previous emissions. And the idea is that over time you are forced to reduce emissions.  And every company trades these emissions.  If you have surplus, you sell them. If you have deficits, you buy them.  So, every company does it.   It is pretty normal.  We’ve done it several times in the past as well.
00:14:40SanjeevThis year Galati had a deficit, Ostrava had a surplus, which under normal circumstances we would just do a swap, but given the Greensill crisis, there was some concern.  We thought it was unfounded.  We thought it was a very legally secure structure to do the swaps.  But okay, we listened to those concerns.  We found alternative solutions basically, Galati found its own money to buy credits from the market, expensive but, they did it. Included in that we bought some credits from Ostrava for cash, that cash now received by Ostrava with a nice handsome profit inbuilt, which will be used for Ostrava’s benefit, so everybody is happy.
00:15:23ChloeNow the Parliamentary Business Select Committee in the UK has launched an enquiry into Liberty Steel.  Why are they doing this?
00:15:30SanjeevActually, the enquiry is into the UK steel industry and obviously given that a, we are an important part of the UK steel industry and also given the Greensill situation, there will be focus on us to see what happened, as well as looking at what’s wrong with the industry and how it can be fixed. Obviously, this for me is a very topical point, because ever since I’ve started my journey on steel and it was obviously in the UK first, I’ve been a strong advocate of the revival of the UK steel industry.  We have declined. We were one of the largest produced or the first producers in the world, today we are amongst the smallest in Europe and amongst the least profitable.
00:16:08SanjeevThis constant decline of the industry is a main topic of discussion, I believe, and I think it’s an incredibly important one.  There are many factors why UK steel industry has declined.  There are many opportunities to reverse that especially with the emergence of this new evolution or the green revolution which will require steel to be made in a completely different way and it has many amazing attributes especially abundance of scrap, has got some significant disadvantages like energy.  So, all of these topics, I’m sure will be discussed.
00:16:39SanjeevAnd so, the impact of Greensill on our business will be discussed and I welcome this committee and of course we will cooperate fully.
00:16:48ChloeFinally, what is your message for GFG colleagues about the steps that are being taken to get through this current situation?
00:16:55SanjeevThe first thing I would say is I am incredibly proud of the effort everybody has had to make to get through this.  I mean I went through a period of intense stress when this crisis broke out. I can imagine a lot of colleagues went through similar or worse.  I’m obviously here fighting with a great deal of confidence that we will get through this.  Managing our businesses very carefully and prudently which we are doing.  We launched Project Athena, it’s been an incredible success.  It has yielded a lot of results and that comes from people in our businesses coming up with solutions, they themselves could not even imagine until this crisis hit.
00:17:34SanjeevSo, I always say, necessity is the mother of invention, and we have certainly come up with a lot of inventions on how to optimise our business, and that will serve us not just now but going forward in the future as well, even once we have refinanced, we will be a much leaner organisation in how we run things.
00:17:49SanjeevThe other concern to me has been firstly actually mental health, especially during Covid. It’s been a great concern to me.  We’ve done a great deal of effort especially with our, I Am Here programme, and that’s yielded great results.  And I continue to be concerned about that, not just because of the crisis but I think it’s an ongoing problem of our generation.
00:18:09SanjeevHealth and safety, again when this crisis has sometimes, it has real impact and especially actually sometimes when you come out of a crisis, health and safety slips. So, again, I urge everybody to keep that at the forefront of their efforts.
00:18:22SanjeevSo those are the things which I am very proud of.  In terms of steps, we’ve taken as I’ve outlined earlier, we have taken a lot of steps on managing our business, on refinancing.  I have every confidence our business will come out of this stronger and better.  And I also believe that the next decades are decades of the resurgence of industry especially the steel industry and especially green steel which we are very much at the centre of.  So, I believe we have a good future.  We just have to get through this current period.  t still will take several months before we are out, so we have to continue to keep our belts tight and continue to work hard and in the best way.
00:19:00ChloeSanjeev, thank you very much and I look forward to speaking with you soon on our next edition of the podcast.
00:19:04SanjeevThank you, Chloe, important and a pleasure always. So, I look forward to the next one.
00:19:10ChloeDo join us next time when we will continue to bring you the latest developments and news.  Until then, from me Chloe Tilley and Sanjeev Gupta, it’s goodbye.
00:19:17JingleSpoken. Back soon.

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SPOKEN – Business Update Three
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