SPOKEN – Special Edition

This is a special edition podcast focussing on the challenges that GFG Alliance is currently facing. In an in-depth conversation, Sanjeev talks about what the situation means for colleagues across the business, the failure of Greensill Capital, government involvement, media speculation and what next for GFG.


Show Transcript:
00:00:01JINGLESpoken from GFG Alliance.
00:00:04JUSTINE GREENHello and welcome to Spoken, the podcast for GFG Alliance colleagues across the world. I’m Justine Green and this time we have a special edition, focusing on the challenges that GFG Alliance is currently facing following the failure of one of its major lenders, Greensill Capital.   Joining us as always is Sanjeev Gupta, Executive Chairman of the GFG Alliance. Hi, Sanjeev, how are you?
00:00:27SANJEEV GUPTAHi, Justine. I’m holding up, thank you.
00:00:30JUSTINE GREENGood to hear that. Now, Sanjeev, we’re going to devote this entire episode to our conversation now as I know you want to discuss the current situation openly. So, to begin, just give us your summary of what’s gone wrong?
00:00:42SANJEEV GUPTAOkay, look, before I talk about Greensill and what’s gone wrong, I think it’s probably important to reflect the journey because that, in a way, also answers, or gets us to the, to the point where unfortunately things went wrong with Greensill. So, we’ve built, over the last, what is it, eight years, one of the largest steel companies in the world, an important aluminium business, an important renewable energy business and we’ve been a leader of decarbonisation in our industry. Over 35,000 people employed globally in 30-odd countries, $20 billion in revenues, all from nothing.   So, I think it’s very important to reflect on that and what these businesses do and also to think about the fact that in many countries many of these businesses would not exist if we had not believed in them. And, very importantly, we have comprehensively won the green steel argument. When I started in 2013 talking about green steel, everybody used to think it’s some sort of an oxymoron. That steel and green don’t exist together and steel is one of the most polluting industries, but we have models, both in recycling and hydrogen steel, which we are fulfilling and that is now something which countries across the world are getting behind and especially in the UK. UK has a clear decarbonisation agenda and also is now fully committed to our business model of recycling and producing green steel, trying to use renewable energy. So, I think it’s important not to forget what we have achieved and how we got here before we talk about Greensill. We serve tens of thousands of customers globally in every sector and our businesses are important and they are needed in our economies.
00:02:27JUSTINE GREENYou’re right. It’s very much been a journey and often you’ve been called the saviour of steel. So, if we turn our attention to the collapse of Greensill Capital now, what’s gone wrong?
00:02:38Sanjeev GuptaSo, Greensill went into administration very recently, as we all know. When we started, when I started my journey back in 2013 there was few options available in terms of traditional finance to support our vision and our journey ahead. Greensill came as a breath of fresh air because they believed in our vision and our model. They had innovative ways of raising finance and they supported us all the way through and they had been one of our main financiers. But the important point to remember is that, you know, we were basically, we are often sometimes called the world’s largest industrial start-up. I mean, these businesses were either done or about to be done in terms of going bust. So there was no normal, traditional funding available.   So Greensill almost came as a godsend in terms of supporting the restart and the growth of these businesses. Let’s say a year and a half, two years ago, I made a decision that we should, A, become more consolidated, more like a corporate rather than a family office or family business and we merged all our businesses in steel into one large corporate, homogenised our year into one year-end. We chose a global auditor. We started basically doing the consolidation of all these companies around the world in all these continents and we achieved that last year. And this year, our year end being March this year, we were going to basically race to the second audit, the second consolidated audit, and then we were going to go to the financial markets to look at traditional, normal funding sources and diversify away from Greensill. That was work in progress, but unfortunately Greensill collapsed and this is something which has definitely been a great challenge for us and we are managing the situation as best as we can. We have, luckily, a very good dialogue with Greensill’s administrators, Grant Thornton, who realize the importance of these businesses and the importance of these businesses staying stable, even from their creditor’s point of view in terms of getting them recovery. We are managing in the meantime, of course, our cash extremely carefully. I launched recently what I called Project Athena and I’m personally monitoring the different initiatives at each plant in terms of conserving cash and optimizing our operation. And we are working on refinancing away from Greensill into other sources of long-term financing.
00:05:07JUSTINE GREENOkay, well let’s talk numbers then. Exactly how much debt is GFG in?
00:05:12SANJEEV GUPTAWell, look, I can’t, details of exactly what we have with Greensill and so on, especially given the current situation, is confidential. But what I can say is that it is substantial. It is in many, many billions. But also remember that we have one of the largest steel businesses in the world, important aluminium business, including Europe’s largest aluminium smelter and an important renewable energy business.
00:05:33JUSTINE GREENCan you tell us about the type of financing provided by Greensill Capital and how that works in practice?
00:05:39SANJEEV GUPTAIn a mature industry what you would have is that you would go to the capital markets and get either a bond, which would be repayable five years, seven years, ten years and you will service that during that tenure. Or you would have term loans where a consortium of banks would get together.   Since that form of funding was not previously available to us, Greensill was able to provide us long-term funding, but using our future cash flows. So, basically, you know, any future sales we will make, we may make, and then discounting that cash flow and paying it, giving us that as an advance now. That’s the form of funding which we largely use with them and that allowed us to basically buy and turn around and built these businesses.
00:06:19JUSTINE GREENIs the business able to continue without this type of finance you’ve had from Greensill?
00:06:23SANJEEV GUPTASo, Justine, firstly, it was a clear objective for GFG for some time now to move away, or diversify let’s say from Greensill. Some successes we’ve already had in that and a very good example is our Australian business Infrabuild was originally financed by Greensill. We had that refinanced by public bond and traditionally were funded by JP Morgan. So that is a great story of how we transitioned and how we were trying to transition other businesses. In aluminium, largely, is not financed by Greensill, so we have a long term loan with a consortium of over ten banks, international banks. For example in Dunquerque, we have other funding arrangements in other businesses. In energy, most of the funding is not from Greensill. So, there are already parts of the business which are not funded by Greensill and the intention was that our steel business which was largely funded by Greensill, to move that away as well. That is now what we have to do, that is our challenge, and that is our goal, and we now have to undertake and complete that journey.
00:07:21JUSTINE GREENSo what happens now? How will the Greensill administration process play out?
00:07:26SANJEEV GUPTASo we’re in active and positive dialogue with them in terms of we have, you know, de facto we have a standstill, you know, with them, but we want to, we would like to ideally have a formal one and that’s being continuously discussed and negotiated and I’m confident we’ll achieve that. We of course, but the more important point to make, as of course we do have also a defence which we’re readying and we have readied all our proposals are readied because we had committed facilities for three years. So, you know, if for any reason there is any dispute with Greensill or its administrators, we will, we have our defence ready and we’ll use it. But I’m quite hopeful that we won’t need to and then once that is in place, once the standstill is in place we will negotiate long-term refinancing.
00:08:11JUSTINE GREENOkay, Sanjeev, next we’ll talk about government involvement in the situation.
00:08:19JUSTINE GREENSanjeev, a great deal of talk has been about the UK Government’s Coronavirus large business interruption loan scheme with reports of loans to GFG to the value of around £400 million. Were any rules broken?
00:08:31SANJEEV GUPTAFirstly, it’s important to distinguish; the loans are granted by the lender to the borrower ie from Greensill to us, but the guarantees are between the British Business Bank and Greensill. As far as I know, Greensill took extensive legal advice on the rules applicable, both from lawyers and also they consulted the appropriate authorities, and they followed all the rules. What I can say for certain is that GFG did not break any rules.
00:08:58JUSTINE GREENAnd is it true that the Government guarantees behind the Coronavirus large business interruption loan scheme have been removed so there’s no exposure to the taxpayer?
00:08:06SANJEEV GUPTAAgain, this is a matter between Greensill and BBB. But, yes, that is my understanding as well, that those guarantees had been cancelled.
00:08:14JUSTINE GREENNow, GFG have also applied for other loans in Europe. How is this money from all these loans been used?
00:08:19SANJEEV GUPTASo, Greensill was our conduit to try and apply for many of these government backed guarantees for Covid interruptions. Unfortunately, in the middle of all of that they collapsed. What I can say is that whatever money we receive from them, from these guarantees, we’ll use them for the purpose of the businesses.
00:08:38JUSTINE GREENAre you asking governments for further support to get through this crisis?
00:08:40SANJEEV GUPTAEvery since this episode started, I’ve had obviously an intense amount of discussions with governments around the world, our businesses and the number of people and communities it supports is very important. I’m constantly kept updated, they’re all very supportive, and all willing to help and we are working with them to see how that is possible.
00:10:01JUSTINE GREENI know that you’ve sent updates to colleagues about the current challenges, but the UK businesses in particular continue to receive scrutiny and speculation from the media. So, a question everyone listening now will want to know the answer to is, how will this affect them? You have around 5,000 employees in the UK. Will working hours be reduced? Will there be pay cuts or redundancies?
00:10:21SANJEEV GUPTASo, Justine, first of all I would like to talk briefly about UK industry. UK industry has been in a difficult place for a long time. It’s been in decline and we’ve seen plants, whether it’s steel or aluminium, close one after another, after another. But since we started in the UK we have saved many plants and each and every one of them would not have got through. It was either closed, closing or on its last legs. So I am, first of all, incredibly proud of what we have done in the UK by saving those plants and turning them around.   You know, some people are saying that steel doesn’t belong in the UK. I completely disagree. I think industry is vital and, if anything, last year with Corona it was proven that local supply chains are vital and a mature economy must have a strong industrial sector and I believe the UK is now also behind that belief. So, I am very proud that we have been part of that journey. But we did buy all these plants in a poor condition and the turnaround takes, in many cases, a long period. Some have turned round and are doing well, some are still in the process of being turned around. Some, unfortunately, were basically turned round, but have been hit by unforeseen events. I mean, Brexit was first. All the uncertainty brought. Diesel, in terms of diesel engines was another big hit for the automotive sector. The automotive sector in general has been tough in certain parts and recently now with COVID aerospace has been badly hit. So that does impact our businesses in some cases. But I remain committed and I remain a believer that UK industry, especially decarbonized steel, decarbonized aluminium, are key parts of the UK’s future and its heritage and, as always, in that journey my people will always come first. So we will do whatever it takes and whatever is right by them as best as we can.
00:12:14JUSTINE GREENNow, what about the rest of the GFG Alliance family globally? Will they feel any effects from this?
00:12:20SANJEEV GUPTAIt’s quite a big event for us. You know, Greensill was our main lender. But many of our businesses, or actually I should say most of our businesses globally are in pretty good shape. Steel markets, aluminium markets, again, I know markets, at a very high level, spread is high. So they are all operating well. There are, again, in some places, small exceptions where some of our downstream automotive businesses are struggling a little bit because of the challenges and changes in those sectors.   But by and large the businesses themselves are doing well. They are impacted by the, all the media and all the, you know, all the noise around this issue. But they’re coping well.
00:12:59JUSTINE GREENThe steel and aluminium markets are generally in a buoyant phase. Will this help the current situation the business is facing?
00:13:05SANJEEV GUPTAAbsolutely. I mean, we have, well this is evidenced, for example, by the amount of incoming interest we have from financiers wanting and looking to find ways of refinancing the Greensill debt. So, yes, the markets are very strong. These, these industries, you know, like all industries when they’re doing well, attract a lot of investor interest and I believe it’s something which is a real benefit, given the kind of situation we’re in that we will get support.
00:13:34JUSTINE GREENOkay. Well, let’s continue in a moment and talk about what’s next for GFG.
00:13:42JUSTINE GREENSanjeev, explain your thinking as to why you’re still in Dubai at the moment?
00:13:47SANJEEV GUPTAJustine, I came here with my family for Christmas holidays. Unfortunately I caught COVID and, sort of, had a couple of months to recover from that. By the time UK entered travel restrictions and so on, so we decided to stay here till Easter. But in the meantime we got hit by this Greensill situation and actually that is, from a time zone point of view, this has worked well for me because our world spans Australia to America. So I get up in the morning, work on Australia, Asia, then Europe starts to open. I’d cover Europe and then in the evening I can cover the US. So I can use my time very productively. It would have been much tougher for me to handle this crisis from Europe for example. So it’s been a small blessing in that way.
00:14:27JUSTINE GREENYour personal expenditure has come in for some scrutiny from the press. How would like to respond?
00:14:33SANJEEV GUPTAIt’s, you know, for me personally I’m used to, I’m not having a distinction between my personal life and my public life. I’ve chosen that life. You know, I’ve gone on this journey. So, it’s okay. It’s a bit, it’s been a bit painful for my family, I must say.   But, I want to just point out specifically that, the background behind this issue specifically about my house in London. You know, we have been, let’s see, almost on a world tour. I moved to Dubai in 2009, then we went to Wales for a couple of years. Then we went to Australia for a couple of years. Always usually following business ventures. But we decided that we wanted to come back home and London is our home. So, we wanted to basically settle down. We looked for a family house. So, in 2019 when I came back, we searched for a family house. We found one, which we wanted to make our permanent home. I sold a personal property to contribute towards the equity. My family contributed towards the equity. We took a mortgage and we bought a lovely house. If it had happened six months later in the middle of COVID I probably wouldn’t have done it, but we exchanged on the house long before COVID. So that’s just what happened.
00:15:47JUSTINE GREENNow, there’s been talk that some of GFG’s financing and transactions involve companies run by your friends. Are you able to set the record straight?
00:15:55SANJEEV GUPTANo, the record is easy, Justine. I’ve grown up in a family business, friends are very important and doing business with friends actually is the safest form of business in my experience. Every relationship, everything I do in life is based on relationships and I call everybody my friend, including my employees and any other commercial relationship I have.   But what I think is important to probably put into context is that we have probably, I don’t know, 100,000 customers globally. So I certainly, I would like to think I have that many friends, but my friends are, you know, just a handful of people. But I’m proud of the dealings we have with them.
00:16:29JUSTINE GREENOkay. Well, let’s take a look into the immediate future. Can you clarify what you’re doing about finding new funding? Surely it can’t be an easy task.
00:16:37SANJEEV GUPTAGiven the scale of our business and the operations, global operations, and also of course given recent events it is a challenge. But I am very encouraged by the amount of interest there has been from the financial community. We have a lot of interested parties who want to help us refinance Greensill and that’s testament to the fact that our businesses are doing so well. So I’m confident we’ll get there, but it will take some time.
00:17:00JUSTINE GREENWithout new funding how long can GFG survive?
00:17:03SANJEEV GUPTASo, in terms of our day to day operations we are taking some very strong, prudent steps to conserve cash. We’ve launched what I call Project Athena where we have daily calls with each plant and we go through, bit by bit, in detail, how to conserve cash, which could include measures such as, you know, getting some of your customers to pay early and, given the strength of the market, customers are willing to do so. You know, reducing your inventory levels, getting rid of any junk or anything which is accumulated. All plants have lazy stocks or things where they need to get rid of which accumulate. So, doing sort of, a clean-up if you like, and all of those measures are yielding results and I think our businesses will continue to do okay.
00:17:42JUSTINe GREENAnd are there any plans to sell parts of the business?
00:17:45SANJEEV GUPTANo. We have no plan to sell any of our core businesses.
00:17:49JUSTINE GREENWith the benefit of hindsight do you think there’s anything you should have done differently to avert this situation?
00:17:55SANJEEV GUPTANo, this is something of course I reflect on constantly since this started. The obvious answer is we should have diversified away from Greensill sooner. But I must say it’s not that that wasn’t recognized, it wasn’t being done. We had, that’s part of the reason why we consolidated the group, setup a Board, setup non-Exec Directors. Setup all the governance and all the transparency and all the structure which you would need to go and access normal, traditional financing. And that was in train. Could we have done it sooner? Probably. I mean, you know, if I had seen this coming I’m sure we would have probably done something or the other which could have done it sooner. So that’s my only reflection. That perhaps we should have diversified sooner.
00:18:37JUSTINE GREENAnd what about you personally? How do you feel about all of this?
00:18:41SANJEEV GUPTAIt’s been, I mean, it’s been the most difficult month of my life without any exception. You know, I really care about my business. It’s my family. I care about my 35,000 employees. I feel I’m responsible to them. I worry about them and I’m totally committed to, you know, come out of this and actually come out stronger. So, it’s an intense period for me for sure.
00:19:04JUSTINE GREENFinally, what’s your message to colleagues across GFG during this worrying and uncertain time?
00:19:11SANJEEV GUPTAI think my most important message is most of the businesses which are within GFG have seen hardship before and they have come through that with their own perseverance and their own grit and their willingness not to give up. And that is a testament to their character and this is perhaps a time where that’s being tested again. But we should remember those times and actually look at the fact that actually today our conditions are very different. Normally businesses get to issues when markets are down, there’s dumping from other places, you know, the chronic cycles are in the wrong place. It’s, we are in exactly the opposite position. Our businesses are doing well. They have done huge amounts of turnaround and markets are very strong. So, we should take comfort from that. But we should remember our history and how we built this group. We should remember that many, many of these plants would not exist and many tens of thousands of jobs would not exist if it wasn’t for our collective effort.   What we do is essential to the world, is essential to economies and more and more so, especially through COVID, governments have realized how important local supply chains are and we have won our argument on green steel. The whole world is now behind this, which we started. I, you know, I take pride in saying that we are the leader in decarbonisation of our industry, of green steel. We have a good strategy. Economically we have bought businesses counter cyclically at the bottom of the market. We have turned them around. Socially, we have saved tens of thousands of jobs and rebuilt industrial communities. And environmentally, our model is the right model. Green steel is the way forward and everybody is now accepting that. I am extremely, extremely proud of what I have achieved and what all of you have achieved together and we need to be reflecting on this as we go through this period.
00:21:06JUSTINE GREENSanjeev, thanks for joining us. We’ve covered a lot and I’m sure there’ll be more to talk about on our next episode.
00:21:10SANJEEV GUPTAThank you, Justine. It’s always important to share my thoughts, especially at a time like this. Thank you very much.
00:21:19JUSTINE GREENWe’ll be back soon to keep you updated with the very latest news. Until then, from me, Justine Green, and Sanjeev Gupta, it’s goodbye.
00:21:26JINGLESpoken. Back soon.

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SPOKEN – Special Edition
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