UK draws up plans to run Liberty Steel if Gupta’s GFG collapses

The UK government has drawn up a contingency plan to run Liberty Steel using public money while searching for a buyer, as ministers brace for the potential collapse of Britain’s third-biggest steel company.

Downing Street is increasingly concerned about Liberty’s current owner GFG Alliance, run by industrialist Sanjeev Gupta, which is scrambling to find new financing after the failure of its main lender, Greensill Capital.

One option under consideration for Liberty, according to government officials, is to use public funds to maintain production similar to how the Treasury supported British Steel in 2019 at a cost to taxpayers of nearly £600m.

The sensitivity over Liberty — which employs 5,000 workers — is heightened by the fact that many of its 12 UK sites are in marginal constituencies including Hartlepool, where there will be a high-profile by-election in early May 1.

UK taxpayers are already exposed to more than £1bn of debt from GFG and Greensill via three government guarantees.

As his group was taking out state-backed emergency Covid loans to tide its businesses over during the pandemic, Gupta completed the purchase of a £42m London townhouse, the FT can reveal. The property in Belgrave Square was bought in August 2020, according to Land Registry records. However, Gupta is now believed to be in Dubai.

Officials have turned to the playbook they used in the rescue of British Steel as they consider their response to Liberty’s predicament. In May 2019, British Steel went into compulsory liquidation and was passed to the Official Receiver, an employee of the Insolvency Service, a government agency. 

The government then agreed to indemnify the OR to enable it to pay the substantial running costs until the business was sold to Chinese steel group Jingye in March 2020, saving 3,000 jobs. The 10-month intervention cost taxpayers’ £588m, according to the last annual report for Beis, the business department.

Kwasi Kwarteng, business secretary, this week said the government had rescued other steel businesses in the past but that he could not “anticipate or guarantee forms of intervention”.

Government officials stressed that no decision would be made unless and until the company collapsed.

One concern is whether Greensill, founded by Australian financier Lex Greensill, could have a charge on the Liberty assets and thus taxpayer money. In a court filing Greensill disclosed that it had about $5bn of exposure to Gupta’s businesses.

According to court documents, GFG said in a letter on February 7 that if Greensill stopped providing it with working capital, it would collapse into insolvency.

The question people are asking is how this will look in the Red Wall if we don’t somehow intervene to help these jobs

However, GFG continues to try to secure alternative financing. Gupta insisted last week that GFG was “operationally strong” and that talks to secure new financing were “progressing well”. The company has hired investment bank PJT Partners and advisory firm Alvarez & Marsal.

Separately, PwC has been asked to carry out a strategic review of GFG’s UK engineering businesses, based mainly in the Midlands, including the former Caparo operations bought out of administration by Liberty Steel in 2017. These have been hit hard by the downturn in the automotive industry. PwC declined to comment. 

Liberty Steel’s other sites include factories in Hartlepool, with it’s pending by-election, and Teesside, where the Tory mayor is seeking to hold on to his seat in the May local elections.

The group also has sites in Scunthorpe and West Bromwich — which both swung to the Tories in the 2019 general election — and in Newport, where the two Tory candidates only narrowly missed out on unseating the Labour incumbents. One of its speciality steel sites in Yorkshire is in the Red Wall seat of Stocksbridge. 

“The question people are asking is how this will look in the Red Wall if we don’t somehow intervene to help these jobs,” said one senior Tory figure.

Ed Miliband, Labour’s shadow business secretary, has increased the political pressure by calling for the government to nationalise Liberty’s steelworks if necessary. 

Unions urged ministers to give Liberty Steel’s British workforce the “same commitment” as the French government recently did. Bruno Le Maire, France’s finance minister, last week said his government was prepared to step in to help employees working at GFG plants, including in Ascoval and Hayange, if needed. 

“We look to the business secretary to confirm he will intervene if necessary. Liberty Steel is a strategic business, a major employer and a low-carbon steelmaker vital to a greener future, and therefore a solution must be found,” said the National Trade Union Steel Coordinating Committee.

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