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To Wildly Speculate About Gupta And Greenshill

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Greenshill is a company that provides trade finance. No, don’t worry about the details, just accept that. Greenshill also seems to be going bust or perhaps something close to that. On the grounds that it financed a bit too much trade with people who weren’t wholly and entirely capable of paying it all back.

Gupta is – not an individual, not the one central company, perhaps best described as a miasma of structures that have certain common shareholders – attempting a roll up of near expired metals assets. Some ancient aluminium smelter in Northern France, a steel mill here, a blast furnace there and so on.

Nowt wrong with a roll up. Lakshmi Mittal made himself one of the richest men in the world doing exactly that. I vaguely know people who have vague direct knowledge of how the Mittal empire was run – excellently, very, very, efficiently. Cheap assets perhaps, all sorts of government doucers to take on near expired assets, but once acquired those assets were sweated properly, as they should be.

Greenshill has lent quite a lot to Gupta – our miasma, not any individual or company – and Gupta – miasma – has also gained some support from varied Covid related programmes from the Brit government. That support in the form of guarantees on debt financed from elsewhere like Greenshill.

Those guarantees, or at least some of them, were withdrawn over the weekend on the basis that the applications were not quite right. At which point Greenshill funds are looking pretty weak on the basis that the Gupta debt isn’t worth quite what was thought.

All most, most, fun.

But what’s the big thing here then Tim, you metals industry expert? Well, I have near no knowledge of the steel business and even less about Gupta – miasma – but here’s the crux of the matter I think.

Nowt wrong with a roll up but it does have to be true that the amount paid for the assets individually must be less than the value over time of the assets collectively. Mittal did that. He was – largely – buying during the artificial – or at least temporary – slump in asset values as a result of the Soviet to CIS transition. When vast Soviet plants were churning out material at operating losses let alone their capital costs being entirely sunk. But as those wear out and don’t get replaced then those got cheap rise in value.

The roll up works because the assets, individually, were bought for less than the value collectively over time.

Now Gupta, the miasma. The assets have been bought much more recently. There’s no particular reason to think that they’re undervalued at present. We aren’t looking at some temporary depression in their valuations. They’re simply end of life assets which are worth possibly less than their scrap value. The world has changed that is, not just wobbled.

So, the roll up might work if there’s still a bit to squeeze out by sweating the last life of the assets. But there’s no coming bounce as there was with Mittal.

At which point, if you even slightly overpay for the assets then the roll up won’t work.

I don’t think the miasma will work. An entirely uninformed opinion and no more than that. But it is my opinion.

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