UK-based Liberty Steel Group’s application for a £170mn ($235mn) bailout has been rejected by the British government.
According to media reports on Mar 28, Liberty Steel’s founder and GFG Alliance chairman, Sanjeev Gupta, wrote a letter to the UK government last week seeking support to absorb recent losses and finance its daily operating expenses.
The company cited that weakness in the aerospace market has cut demand for some of its UK specialty steel business’ products by 60pc.
The government rejected the plea based on concerns about the “opaque” nature of the company’s funding structure, perceived financial risk, and corporate governance, per reports that cited government sources.
It is highly likely that the UK government will wait until the company enters administration to protect GFG’s 5,000 employees rather than the corporate entity itself. This has been made further likely by mounting rumors and reports of financial impropriety, which suggest Sanjeev Gupta used £42mn to cover the purchase of a private residence.
Concurrently, GFG Alliance has been working on plans to raise funds against non-collateralized overseas assets, liquidating scrap metal stocks, and making presales of finished goods.
A GFG Alliance spokesperson said that the company was taking steps to improve its cash flow and stabilize operations by reducing steel stocks, asking for prepayments on orders, and matching stock to customer orders. This would then enable the company to raise the necessary funds to transfer back to the UK operations to stave off what appears to be its imminent demise.
(£1 = $1.38)