How to Make a Global Billionaire
- PART of Series: Political-Industrialist Cronyism and Fintech networks and Public Sector Banks NPAs
- India Investing 101 (this doc)
- Part of Series - India 2030 Series: Lessons from Success in Other Countries
- See Also Geo-Politics Series - Guide to Geo-Economic-Politics
- Global Opaque Ownership Structures
- Global Opaque Ownership Structures
- === Lessons from Cases of New Global Billionaires
- Case of Liberty Steel Gupta "attracts" Greensill
- How Gupta's Acquired so many Assets so Fast
- Gupta Innovated new ways to get Funding to "fund-starved" smokestack companies
- Expensive, opaque and unconventional financing is more profitable to Bankers
- Receivables financing - risky and Expensive
- Reverse Factoring Innovation
- PE LOADs acquired firms with Debt, Expenses
- Own Your own Bank - be part of syndicates!
- Shop for and Build relationships with LARGE LENDERS - giving huge profit margins
- Gupta's Timeline and Far-flung empire
- Softbank Valuation Games
Global Opaque Ownership Structures
Global Opaque Ownership Structures
=== Lessons from Cases of New Global Billionaires
Case of Liberty Steel Gupta "attracts" Greensill
How Gupta's Acquired so many Assets so Fast
The Indian-born businessman turned 48 in 2020.
A dazzling run of acquisitions has in less than five years transformed GFG Alliance, Gupta's family’s business empire, from an obscure commodities trading outfit into an industrial powerhouse with $20bn in annual turnover.
GFG even describes itself as the fifth-largest private landowner in the UK.
STATE APPROVED - Rescuer of inefficient Steel Mills - 35,000+ jobs "saved"
Gupta has been hailed as a rescuer of jobs and smokestack industries from Scotland to Australia.
- Sanjeev Gupta dubbed Britain’s “saviour of steel” This is due to often "knight in shining armor" as bank of last resort else state would have to step in!
“We work with a range of financial institutions including Greensill, a valued partner, to access capital in order to invest in companies, and to create and preserve jobs. We are satisfied that we have ample access to capital and headroom within our range of available lending facilities to satisfy the needs of our businesses and their growth.” - Gupta
Go Global to find Bargain Basement Firms
Gupta Innovated new ways to get Funding to "fund-starved" smokestack companies
Gupta has long faced questions about the sustainability of GFG’s funding model. was grilled live on air by a Sky News presenter about the troubled bond sale
Gupta's GFG Alliance said that it often invests in “businesses that have been starved of finance in the past”. “To do so, we use a variety of funding mechanisms, one of which is supply chain finance,” it said.
Expensive, opaque and unconventional financing is more profitable to Bankers
Mr Gupta’s business empire is still heavily reliant on opaque and unconventional financing linked to working capital and supply chains that can be expensive.
Such financing techniques do not have to be reported differently in a company’s debt figures but they still place a financial burden on the business involved.
Receivables financing - risky and Expensive
Receivables financing is sometimes used by businesses that cannot find other ways to borrow more cheaply.
It’s just borrowing and IT MATTERS because the more you borrow and the more you sell receivables, then the weaker the balance sheet. And if there’s a downturn in your market and you face a setback, you’re more likely to fail.
Asked how Liberty had paid for the European steel plants, Gupta claimed “from our own equity and a little bit of debt.” - €2.2bn debt facility (3x purchase price) to fund the purchase of the steelworks from ArcelorMittal, backed by the businesses’ receivables. - Public filings show this debt could rack-up a total interest bill of €660m. - LESSON: He generated 2x purchase price as EXCESS FUNDING - ie purchase was "free".
Reverse Factoring Innovation
One of Greensill’s signature techniques is “reverse factoring”, where financial institutions pay a company’s suppliers early. While large multinational companies use the technique to manage lumpy payments more smoothly, it can also disguise a troubled company’s mounting borrowings.
Rating agency Moody’s has said this type of supply-chain finance is “developing an unenviable reputation for making bad situations worse”, citing reverse factoring’s role in the collapse of UK outsourcer Carillion.
It was a factor in bankruptcy of Spanish energy company Abengoa. Greensill arranged financing for Abengoa through an off-balance vehicle before it filed for bankruptcy protection in 2015.
PE LOADs acquired firms with Debt, Expenses
- Gupta - does he care on efficiency or politics of the plants - willing to let workers twist in wind to influence politicians?
Own Your own Bank - be part of syndicates!
Wyelands Bank, a UK high-street lender is owned by Mr Gupta and named after the very expensive Welsh country estate Mr Gupta owns with his wife.
Wyelands has attracted scrutiny for its financing of the entrepreneur’s wider business empire from political leaders.
This is part of lending syndicates, yielding inside information and perhaps influencing other lenders. For example Wyelands provided $34m of inventory financing towards the Dunkirk aluminum deal.
Shop for and Build relationships with LARGE LENDERS - giving huge profit margins
After all originating highly profitable billion dollar bank loans in zero or negative rate environment is a key selling point for bankers.
From Greensill, Credit Suisse, Softbank and Jefferies - Gupta has flirted with a lot of bankers, some of whom like Jefferies did not materialize.
Lex Greensill the Australian financier is a a confidante of former UK prime minister David Cam, and whose meteoric rise has been closely intertwined with Gupta. Greensill has masterminded much of GFG’s complex funding — including the ArcelorMittal deal. His eponymous company Greensill Capital, which is backed by the Japanese technology conglomerate SoftBank’s Vision Fund, acts as a middleman specialising in working capital finance.
Gupta's Timeline and Far-flung empire
Mittal has sold many steel Plants to Gupta - Why? and are these the Best or the Worst?
- The set of strategic sales reaching a peak in July 2019 has been critical to Gupta landing up with a total rolling capacity in excess of 18 million tonne covering a wide range of finished products and made Liberty the continent’s number three producer of the metal overnight.
UK - homebase
- 2021 UK declines $170m bailout request to "save" British jobs - complaints that a new $42m house bought by Gupta did not go in spirit of bailout.
Australia - where Greensill enabled Expansion
- InfraBuild, an Australian steel manufacturer and recycler. This is notable as Gupta ATTEMPTED to issue first high-yield bond by one of its companies BUT in a disastrous debut in the debt capital markets, Mr Gupta was forced to inject $150m of his own money to save the deal. Even after InfraBuild scaled back the bond by one-third to $325m, sceptical investors still charged the company an eye-watering 12 per cent interest rate.
2020 SPAIN declined - Attempts to acquire Spanish Steel company blocked on liquidity feers
2019 July Liberty House groups purchase of seven steel making units and five service centres from L N Mittal’s ArcelorMittal in Europe for 740 million euros. , which together employ 14,000 people These operations, with a combined rolling capacity of over ten million tonne per annum supply steel to multiple sectors across Europe’s industrial heartlands, including construction and infrastructure products, automotive, aerospace, energy, industrial equipment, consumer products and yellow goods.
- major integrated steel works at Ostrava in the Czech Republic
- Galati in Romania
- rolling mills at Skopje (North Macedonia)
- Piombino (Italy)
- Dudelange (Luxembourg)
- Belgium - two plants near Liege
- The five service centres which market the products are based in France and Italy.
The group breached several terms of a $350m loan that financed its acquisition of Europe’s largest aluminium smelter in Dunkirk 2018 - while it has not missed any scheduled payments, some of these breaches relate to issues such as delayed filing of audited accounts for the smelter business.