Since the demise of Greensill Capital threatened to rip Sanjeev Gupta’s business empire apart, the metals magnate has managed to hold it together thanks to a commodities boom and the patience of Credit Suisse.
The industrialist over the weekend announced a restructuring of his Australian operations with the Swiss bank, which funnelled more than $1bn to Gupta through its suite of supply chain finance funds tied to Greensill. At the same time, his UK metals plants will receive £50m in new funding.
The long-awaited deals are vital for GFG Alliance, the ragbag collection of metals plants Gupta paid for with more than $5bn of loans from Greensill. But seven months on from the latter’s failure, the biggest threat to Gupta keeping his empire intact has sprung from an unlikely source.
A group of executives from American Industrial Partners, a little-known private equity firm with a nose for value, last week arrived at Gupta’s aluminium smelter in Dunkirk on the northern coast of France.
Dino Cusumano, Danny Davis, Zac Carson and Max Holmes had a simple message for the roughly 100 workers gathered at the smelter regarded as the crown jewel of Gupta’s European business: the US buyout firm was now in charge.
For AIP, which normally scours the unloved corners of America’s industrial economy for takeover targets, taking control of Europe’s largest aluminium smelter would be a coup. For Gupta, the loss of the site would be a serious blow, robbing his empire of a vital source of income with the metal trading at its highest level since 2007.
Gupta responded with a threat of legal action, saying AIP’s contention that his company had defaulted on its debts to the private equity firm was “incorrect” and that AIP was trying to buy the business “on the cheap”.
New York-based AIP began buying up the debts of the smelter and GFG’s aluminium mill in Duffel, outside Antwerp, in April, just a month after Greensill filed for administration.
“A lot of people would have been interested in the asset, but the problem was that it wasn’t for sale,” said a senior figure at France’s economics ministry, whose approval is needed since the Dunkirk smelter is deemed a “strategic asset”.
AIP “were quick, and ready to pay 100 per cent of the price of the debt to take control”, the person said. “We had no objection.”
GFG was an attractive target for AIP. Troubles at Gupta’s business deepened in May when the UK’s Serious Fraud Office said it was investigating suspected fraud and money laundering at GFG. The group has denied wrongdoing.
According to its website, AIP takes inspiration from Rudyard Kipling’s The Jungle Book. A page with details of its team — showing that 30 of its 32 partners are male — is headlined: “The strength of the wolf is the pack, and the strength of the pack is the wolf,” a reference to the 1894 story collection, in which the clauses are the other way round.
With an investor base spanning Essex county council’s pension fund in the UK to Alaska’s sovereign wealth fund, AIP’s team of ex-bankers and former industrial executives has accumulated businesses across the US.
AIP’s companies sell everything from tyres and wood flooring to nappies. It agreed last month to buy the defence giant Raytheon’s defence training unit.
It is a “value-oriented” firm that buys companies it hopes to “transform . . . to be more attractive”, Alyssa Fiore, an investment officer at a Massachusetts pension group, said at a meeting where she proposed a $75m commitment to its fund in 2019, probably reflecting the pitch the buyout group makes to investors.
In private equity, “everyone says [their own firm is] operationally-focused, but AIP has more credibility than most when they say that”, said one executive whose firm invested in AIP. “They look for situations where there’s complexity” rather than buying “easy companies that have already been scrubbed off” by other buyout groups.
With about $7bn under management, it is a minnow compared with the industry’s best-known names such as Blackstone and KKR.
A $406m fund that AIP raised in 2007 was in the top quartile for performance, among peers, according to the data provider PitchBook. But its three more recent funds are less impressive, ranking in the third or fourth quartile.
Still, Aberdeen Standard Investments, whose Standard Life private equity trust committed £15m to the fund, described AIP in a 2019 report as a “best in class” buyouts group.
AIP had crossed paths with GFG before the clash over the Dunkirk plant. Their connection has its roots in the 2018 takeover of the aluminium company Aleris by metals supplier Novelis in a $2.6bn deal.
Competition regulators forced the merged business to sell two Aleris plants — one in Duffel, which Gupta bought, and one in Lewisport, Kentucky, which AIP acquired and renamed Commonwealth Rolled Products.
That connection paved the way for GFG to approach AIP about a sale of the Duffel plant in the immediate aftermath of Greensill’s failure, three people with knowledge of the matter said. Gupta ultimately signed initial agreements to sell both Duffel and the Dunkirk plant to the private equity group, including an agreement on price, the people said.
The talks fell apart by July this year, however. By then, Gupta was in discussions with Glencore about an alternative deal that would have enabled him to stay in control of his European aluminium business. GFG later said the AIP talks fell apart because of the “gross under-market valuation AIP put on the business”.
Jay Hambro, GFG’s chief investment officer and one of Gupta’s most loyal lieutenants, had backed the AIP proposal, laying the groundwork for a clash with his boss. Hambro is now on gardening leave, according to two people familiar with the matter. Hambro declined to comment.
As Gupta held talks with Glencore, AIP bought a second chunk of the Dunkirk plant’s debt, this time from BlackRock — which would later enable it to foreclose on the shares of the French company that owns the smelter.
But even with a booming aluminium market, AIP will face challenges at Dunkirk, which employs about 630 people and produces 280,000 tonnes of the lightweight metal each year.
“What matters to us, as employees, is that AIP does not come to pump all our profits,” said Pascal David, head of the CFE-CGC union at the smelter. “We know how [private equity funds] work, their aim is to give profits to their investors.”
AIP executives told staff that all jobs and contracts would be kept.
The buyout firm is not a stranger to the controversy that can come with struggling companies. In 2017, it avoided a steep decline in the value of US energy equipment manufacturer Babcock & Wilcox Enterprises, selling its 10 per cent stake back to the company shortly before problems at its renewable unit were disclosed, court filings from Babcock shareholders claim.
AIP received what one aggrieved shareholder described in a lawsuit as an “artificially inflated” price on the sale of the stake. The buyout firm secured an additional sweetener by providing $176m in emergency lending to the company at a tidy 10 per cent interest rate.
AIP was never accused of any wrongdoing, and was not the target of the lawsuit. Babcock shareholders received a $19.5m settlement in exchange for dropping their claims against the company. AIP declined to comment. Babcock declined to comment.
Like the takeover of the Dunkirk smelter, the Babcock investment involved AIP’s Lightship affiliate, which runs its lending activities. The same unit bought Rand Logistics, a New Jersey-based shipping business, in a debt-for-equity swap in 2017 and later sold a stake to credit investor Oaktree.
Once dubbed Britain’s “saviour of steel”, Gupta last month celebrated his 50th birthday in lavish style on the Greek island of Mykonos. Amid last weekend’s euphoria over the Australian deal, AIP’s intervention is a sobering reminder of the challenges Gupta still faces.
Additional reporting by Owen Walker in London
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