Sanjeev Gupta’s industrial gameplan tried and failed to defy financial market gravity

India-born magnate came to the UK's most distressed towns with a saviour's offer of redemption

Liberty Steel boss Sanjeev Gupta stands outside a steel pressing mill in Scotland in 2016. His company is being investigated by the Serious Fraud Office over its financing arrangements with Greensill Capital. ReutersShow less

Where I grew up, in the north of England, the town once possessed the third biggest steelworks in the world.

In my latter years at school it was still humming and burning, and providing employment to many, including friends during the holidays. It is now an “enterprise park”. That’s code for saying the giant factory in Barrow-in-Furness has long gone, to be replaced by modern, low-slung buildings, all steel and glass, with ubiquitous flagpoles outside and separated from each other by landscaped mounds of grass.

Occupants once made metal for use in submarines at the nearby shipyard, the current occupants are car dealers and government training agencies. So much for job creation, all that’s occurred is one lot of workers have moved from one part of the district to another.

It's a scene repeated all over the north and Midlands of England, and elsewhere, all over the world – wherever, in fact, there was once a large steel mill. Those hulking plants that do remain, however, tend to belong these days to the steel empire of Sanjeev Gupta.

The Indian-born tycoon offered a different proposition to a post-industrial history. Gupta defied gravity where steelmaking was concerned. He was able to turn round mills in Britain and abroad where others simply could not. Team Gupta leaped in to take over steel factories when even the likes of Tata, the mighty international conglomerate, struggled.

I was thinking about this when I was introduced to some of Gupta’s senior team at his Liberty Steel subsidiary. The executives oozed self-confidence. We were discussing their purchase of the former British Steel plant at Scunthorpe, to go with Gupta’s other acquisitions in the UK in Dalziel, Newport and Stocksbridge. In all, 5,000 people in what was left of Britain’s once huge steel industry, owed their livelihoods to Gupta’s nous. This was a pattern repeated all over the world. Heavy industry would falter and Gupta and his Gupta Family Group Alliance (GFG) would neatly step in and save the day.

Team Gupta leaped in to take over steel factories when even the likes of Tata, the mighty international conglomerate, struggled

As if by magic. Because, sitting across the table from them, and hearing how they and their billionaire boss could make steel-producing eco-friendly by installing greener processes and preserve employment really did appear like the application of wizardry. Questions like how, exactly, were batted away. Trust us, they said, they’d done this before, they had a formula, they knew what was required.

Dear reader, I confess to not pressing hard enough. In my defence, it wasn’t the right time or the place. I can take comfort in that I wasn’t alone – hard-bitten unions and politicians had all sat and listened and been similarly enthralled. The truth was that we all were willing to believe. For decades, steel manufacturing, once part of the economic bedrock, was in decline. This was really the last chance saloon and the jobs affected were in areas where new investment was hard to come by.

The Gupta people were also right – they had done it previously, they had a track record, they were able to point to charts and tables showing a journey of unalloyed success.

At the back of my mind, though, was that whatever we thought of the chiefs of British Steel, and they came in for a very hard press, they were not stupid. Nor were the managers of firms such as Tata. Yet, Gupta and his acolytes had devised an elusive formula. They’d built a world business with turnover of $20 billion and 35,000 staff. All, apparently, by applying renewable energy to processes that traditionally were among the biggest guzzlers of fuel on the planet. Genius.

Now, the UK Serious Fraud Office is investigating GFG and its links to Greensill, the failed finance house run by Australian banker, Lex Greensill. The SFO is looking at "suspected fraud, fraudulent trading and money laundering in relation to the financing and conduct of the business of companies within the Gupta Family Group Alliance, including its financing arrangements with Greensill Capital UK Ltd".

Liberty Steel owes ‘many billions’ to Greensill Capital, which is at the centre of a lobbying scandal.

Greensill Capital is bust, and Gupta's own bank, Wyelands, named after his £3m country house in south Wales close to one of his steel plants, is seeking a buyer or it will be wound up. Greensill is the centre of much controversy over the lobbying activities of its former adviser, one David Cameron. All the once voluble GFG will say is that it intends to "co-operate fully" with the SFO inquiry.

Greensill loaned GFG a total of $5bn. Their relationship was so close and inter-dependent as to be described as "symbiotic" by Cameron.

The speciality of Greensill was “supply chain finance” – lending against invoices. GFG would sell steel to a third party, known internally in the company as a “friend of Sanjeev”. GFG would then present that invoice to Greensill who would lend against it. GFG would then buy the steel back. Possibly, it never physically moved.

Round and round it would go, this “circular trading”, rotating cash though the business. It may not be illegal, as GFG claim, but what’s not known and what may be of interest to the SFO was how reliant GFG was on this practice and how much of it was declared to investors.

Helping the cashflow as well, allegedly, were invoices based on future sales, or as they were called by GFG, “prospective receivables.” When companies named on the invoices were asked about their purchases they denied any knowledge of them. GFG’s explanation was that these were companies with which it could “potentially do business in the future”. Whether they were in the future or not, real or not, Greensill was willing to lend on the invoices.

Was GFG again boosting its cashflow via another use known as “double pledging”, raising money more than once using the same collateral? That suggestion, too, has been made. It was prompted by banks questioning the accuracy of GFG’s bills of lading, the documents showing proof of ownership for shipments.

When he appeared before a House of Commons select committee, Greensill attributed his finance operation’s collapse to the withdrawal of insurance cover by Tokio Marine. He refused to answer questions regarding Gupta on grounds of client confidentiality. “At no point would my firm have engaged in financing receivables that we knew to be fraudulent,” he stressed.

We shall see. Doubtless, the SFO will ascertain the truth of that remark. They will also investigate whether, far from producing and selling steel when others could not, GFG was basing its business model on an old-fashioned “Ponzi” scheme – of constantly generating new income to create an illusion of a successful, dynamic business, when in reality nothing is there.

As Sir Isaac Newton realised, it’s a tough thing to counter, gravity, even for GFG. Likewise, there is an old adage in the financial markets that says if something is too good to be true it probably is. Perhaps Gupta, now 49, was no alchemist after all.

Chris Blackhurst is a columnist for The National