‘Australia has had it too easy’
Can maverick Sanjeev Gupta pull off his grand plans to revitalise Australian manufacturing?
You walk up a steep driveway to be buzzed through a security gate and into a garden with a hidden tennis court, a sunken pool and a huge lawn that sweeps out to a view of Sydney Harbour so vivid it hurts your eyes on a sunny day. Bono woke here to a beautiful day and Angelina Jolie’s kids have bagsed the best of the seven bedrooms. Bellevue Hill’s Barford House is the pick of Sydney’s digs for thirty grand a week. For the past two years its occupant has been the new rock star on the Aussie business charts, Sanjeev Gupta.
Dressed in a three-piece Savile Row suit and a pair of R.M. Williams boots, he enters the sitting room an hour late and plonks onto a couch. This former Fairfax family pile has been the beachhead from which the Indian-born, British-educated industrialist has lorded over his antipodean empire. Where others have seen only despair, he’s spotted opportunity. Like a televangelist, he delivers dire warnings with a sweetener of hope and salvation.
We are not long into our conversation when the 48-year-old glances admiringly at his boots. “These are the best shoes in the world,” he says. His words spill out at such a rapid pace it’s as though his audio setting is jammed on x2. “I’m a huge R.M. Williams fan, I’ve got 11 pairs. I’d love to go to the factory in Adelaide; it’s on my bucket list… it would be an amazing company to own.”
What he so admires about his RMs, apart from the comfort and the cut, is that they are still made in Australia. “It proves the possibilities,” he says. Gupta believes that, to their great peril, Britain and Australia have largely given up on manufacturing. He’s scornful of Australia’s business and political elite, who he reckons have had it far too comfy for far too long. Twenty-seven years of economic growth “are a blessing, but also a curse… there’s been a lack of evolution of the entrepreneur, of the risk-taker, the guy who really changes things. Australia has had it too easy. Change is bred from difficulty, not from comfort… dig and load and be comfortable; you’ve not been forced to add any value, to create anything.”
Since he crashed onto the scene in 2017, Gupta has reinvigorated Australian steel-making and saved Whyalla from a wipeout. The old South Australian steelworks is in the midst of a billion-dollar rebuild that will almost double its capacity to 1.8 million tonnes. It will value-add by turning out finished steel products including railway tracks, building beams and pipes that will supply grand infrastructure projects such as the inland rail, Sydney’s WestConnex and Brisbane’s Cross River Rail.
There are more plans – bigger, better – that leave some wondering whether his dreams can ever meet cold, hard business reality. Plans to build a next-generation steel mill to sit alongside the old one, churning out five to 10 million tonnes of steel a year, making it one of the world’s largest outside China. Plans to scope out a potential new steel recycling plant in Brisbane.
He is about to embark on the construction of Australia’s largest solar farm to provide the bulk of the power for his Whyalla operations. Construction is scheduled to start before the end of this year and if this solar plant is successful he’ll roll out bigger operations around Australia. “It’s only 280 megawatts,” Gupta says of the 1100ha Whyalla farm, enough to power 100,000 homes and costing half a billion dollars. “I mean, when I say it’s the largest and it’s only 280 megawatts, that’s a disgrace, right? I mean, it should be 3000 megawatts, 10,000 megawatts, that’s the opportunity. This is just the beginning, the cookie-cutter…we want to do this on a mass scale.” He views these solar farms as potentially his biggest business venture in Australia.
But why stop there? He’s cutting a whole new set of keys in an attempt to restart car manufacturing, with ambitions for a new electric vehicle plant. He tells me he will announce “concrete plans” before the end of this year and that he’s been working with famed McLaren F1 designer Gordon Murray to design an EV to be built in Australia. “The combustion engine is going to disappear very quickly, more quickly than we imagine… within the next 10 years there’s going to be a mass conversion globally and lots of countries are leading the charge. Some are doing it faster. Some are doing it slower. Unfortunately, Australia is doing it slower, but it’s a phenomenon that is unavoidable.” Gupta reckons we’d be stupid not to be in the race. “You’re going to be using electric cars, irrespective of whether you want to or not,” he says. “The issue is, do you make them or do you want to buy them from abroad? Do you take this opportunity to make cars in Australia, because it can be done… Let’s evolve. Let’s be ahead of the curve. Let’s make change happen, rather than waiting for change to happen.”
Australians have grown accustomed to slash and burn executives with monikers like Max the Axe and Chainsaw Al, who’ve saved the village by bombing it. But that’s not Gupta’s style. In 2013, when he bought a failing steel mill at Newport, Wales, the plant shut down for two years for a major upgrade. Rather than sacking the 150 staff, he offered to retain them all on half pay and top up their super until the mill reopened. In the meantime they were free to find other work. Only six of the 150 workers failed to return when the plant reopened. “Change is difficult,” he says, and if you look after your workforce they are more likely to embrace it.
With 6700 employees working at 173 sites around Australia (steel-making, recycling, mining and energy assets), he’s now one of our most significant industrialists and vital to the South Australian economy. In the months since I began talking with him his global workforce has more than doubled to more than 30,000 people with the purchase of seven steel plants in Europe, adding to his sizeable operations in the UK and US. He’s now among the globe’s largest steel producers and Forbes magazine describes him as possibly “the world’s most ambitious industrialist”. In a glowing documentary the BBC dubbed him “Man of Steel” and lauded him for saving the British steel industry.
But such a swift rise brings with it some serious doubters. “The rapid expansion has left many London metals traders and industry figures wondering how the charismatic entrepreneur is funding his endless flow of deals,” says Michael Pooler in the Financial Times. John Collingridge of The Times concurs: “Beneath his meteoric growth lies a fragile and interdependent ecosystem: politicians desperate to save jobs in tired industries, companies keen to shed problematic assets, financiers eager to package and sell government subsidies, and investors hunting for yield in the ultra-low rates environment.” An investor, quoted by The Times, says: “It’s playing roulette with public funds.”
In Australia, federal and state governments see a town like Whyalla being bailed out and they like what they see. “He brings an entrepreneurial spirit,’’ Prime Minister Scott Morrison declared last December, standing with Gupta as he announced a $600 million upgrade at the steelworks. “He’s defied the critics and he’s backed himself with his own cash and his own credibility to come here and make this work.”
If Sanjeev Gupta can pull it all off, he’ll be hailed a genius and we’ll all be scooting about in his electric cars fuelled by his solar farms. It will take him into the top tier of the world’s billionaires and he’ll revitalise manufacturing in the developed world. But if he fails, he’ll fail spectacularly. It’ll be ugly. There’ll be blood on the walls.
As the door closes with a heavy clunk there’s mock despair from his senior Australian executives about having to “slum it” – Gupta’s big private jet is back in Europe so we’ve had to “cram” into a borrowed eight-passenger jet for the late-evening trip from Sydney to Whyalla. Gupta has no boundary between his private life and his business world – his staff and associates are his friends. And so, tonight, it’s time to relax. A well-spoken bloke in a pinstripe suit is deputised barman for the long, slow flight into heavy headwinds. Before takeoff, a couple of Eskies are plonked behind the cockpit and the barman starts handing back beers; later he’ll move on to champagne and then gin and tonics. Gupta possesses an easy humour and a confidence that allows his staff to crack jokes at his expense. One of his close Sydney mates, stockbroker Les Owen, told me earlier he’s continually amazed at how calm and level Gupta always is, considering he’s got “hundreds of agendas” running every day around the world. “He’s one of those guys who loves the business world so much that that’s what relaxes him,” says Owen. “Business is like an addiction,” Gupta says to me, taking a sip of his beer. “You have to sacrifice everything else.”
We settle in and he explains how, two years ago, he tricked his wife Nicola into moving to Sydney from England with their three young children so he could oversee the transformation of Whyalla and his other Australian assets. “She came on a holiday and I literally told her on the plane,” he says. “I said, ‘You know how this is supposed to be a month or two – how about it be a couple of years?’ She looked at me like I was joking, but she knew I wasn’t. She rallied everyone to persuade me otherwise, but of course I won, as I always do.”
Still, a mansion in Bellevue Hill was hardly banishment to Port Arthur. He bought a big boat and they entertained their new mates and family who flew over from abroad. Nicola knew what she was getting into, he says, having worked for him. They began their relationship back when he ran a successful commodities trading house in London and they kept it secret for eight years, concerned his conservative Indian parents might not approve. “One of my drivers accidentally let the cat out of the bag. But by then they were desperate,” he says, jokingly, about his parents. “I was nearly 40.” They married in 2008.
Before he was sent off to boarding school in England and on to study economics at Cambridge, Gupta spent his childhood in Punjab, northern India, where his grandfather owned steel mills. He says his upbringing in a large house with live-in staff left him with a strong sense that your workers were part of your family and that you had a responsibility to look after them – he claims never to have laid off staff from any business he’s owned. “The chap that looked after my dad as he grew up, his son looked after me and there is that whole ecosystem, right,” he says. “Everybody coexists and you look after each other.” He now has more than 30,000 staff but says that ethos “is in the DNA” of his company, GFG Alliance.
His father built a successful bicycle manufacturing business and went on to establish an energy and natural resources conglomerate. “When I was a kid, I went around my dad’s steel plants and his bicycle plants and I have great memories there,” he says. He loved the alchemy of it, men working with raw metals and transforming them into objects like bicycles. “I’m sure that’s what inspired me to get into the industry,” he says.
It sets him off on his favourite topic, the importance of manufacturing, and he orders another round of gin and tonics. “We are facing a vacuum of talent,” he says. “Britain is losing its industrial heritage. In the last 20 years British industry has declined from 30 per cent of GDP to 10 per cent. When I was growing up everyone wanted to be an engineer. Now everyone wants to be in the City working in a dotcom.” This abandonment of industry by Britain, and Australia, will have dire consequences and the “crisis will come for the next generation”. The problem is particularly acute for Australia. “This country is dependent on certain resources, coal is one of them… It’s natural that people will want to protect that.” However, he says, just about everyone, even coal’s noisiest defenders, realise that coal is, long term, a moribund industry.
Gupta’s business philosophy is based on the concept of building a sustainable manufacturing industry powered by renewables. “Steel is a commodity which once produced does not ever perish and globally there are mountains of steel that needs to be recycled… almost half our scrap is still exported from Australia,” he says. He wants to take that scrap and turn it into valuable products, and then export them. He believes we’ve reached the tipping point with renewable energy. “We are at a very dynamic point in history in terms of moving away from fossil fuels,” he says. The cost of a solar panel is 15 per cent of what it was a few years ago and “it will continue to crash”. Everything needed to build giant solar farms – quartz, glass, aluminum, land, sunshine – is “more abundantly available in Australia than anywhere else in the world”.
“I could build a coal-powered station. Why am I building a solar-powered station? I’m not a charity. I am doing it because it is better for the environment – but it is also economically viable.” He says this revolution will give us a significant competitive advantage in manufacturing. “People talk about labour in Australia being an inhibitor, but technology is evolving at a much faster rate than the cost of labour,” he says. A well-educated workforce, he argues, one that can develop and operate new technology, is now more important than cheap labour. He envisages an Australia where the resource-rich regions will blossom under the beam of cheap, renewable power produced locally. “I don’t think people appreciate how cheap energy can actually be – if it goes from $100 to say $10, it starts to change everything.”
This theory will be put into action in Whyalla. He claims he will one day build a house there, overlooking the water – though Nicola may take some convincing. “When I first went to Whyalla there were very senior people in government, I won’t say names, who said, ‘We know this is going to close, can you help keep it open until we can find a transition?’ ” Gupta says his ambitions were much grander than that. “I was very surprised because I saw a clear path forward.” From the get-go he was impressed with the city’s fighting spirit and the workers who had taken a 10 per cent pay cut to keep the steel plant open when it was in voluntary administration. (They have since clawed back six per cent.) “That stubbornness is a key ingredient. You need people who are not willing to give up, who are willing to persist. Who say, ‘I will not go. I will not perish. I will survive’.”
As our jet begins its descent, he says: “I truly believe that Whyalla will become an industrial hub, not just for Australia, but globally.”
The streets of the global superpower are prettymuch deserted when I rise for a morning walk. Whyalla is a surprisingly charming industrial town. It sits on desert saltbush country on the edge of the ocean with beautiful stone cottages, grand art deco pubs and civic buildings and a skyline dominated by the steelworks. There’s nothing to announce the beach; it just appears on the edge of town in an unpretentious manner. Down in the main drag is the evidence Whyalla has taken some savage smacks to the gob: every fifth shop is abandoned like missing teeth in a brawler’s grin. At its height in the ’70s it had a population of 34,000; now it hovers around 22,000.
Alessandro Parisi, owner of Caffe Sempre, is hoping Gupta will provide some much-needed dentistry. Parisi was four years old in 1971 when his family moved from Rome, Italy, to Whyalla, South Australia, and he’s never left. “I love this town,” he says, serving me a strong latte. “There is an incredible sense of community. It’s a great place to live and raise kids.” As a child in 1978 he witnessed the town weather the closure of the shipyard; it was only kept afloat by the steel mill. But in 2016, it seemed Whyalla would slide right off the peninsula and disappear into the Spencer Gulf when Arrium – which owned the steelworks and the iron ore mine that supplies it – went into voluntary administration. “I really felt a great fear for the town,” says Parisi, pressing his hand to his heart. “To witness a town on its deathbed is utterly depressing.”
During the time of voluntary administration the severe drop in house prices was academic; you simply couldn’t sell at any price. “We’d have all been ruined,” says Parisi. “Our houses, the schools, the hospital – everything would have been worthless had the mill closed. Everything.” And then Gupta came to town. They all refer to him as Sanjeev and everyone seems to have had a positive encounter with him. “At first I was sceptical of Sanjeev,” says Parisi. “But then I started to do some research and it seemed with what he had done in the UK he was really the guy who could turn things around.” His faith has not wavered.
Down in front of the Whyalla Foreshore Motor Inn there’s a plaque on a rock commemorating Queen Elizabeth’s visit in 1986. But the picture hotelier Barb Derham has in prime position in the dining room is one of her with her arm around Sanjeev Gupta. In this town, Gupta is king. “For a billionaire, he’s just so down to earth,” says Barb. “His whole family have stayed here and they’re all lovely… would you believe we are on the world stage. This man, Sanjeev, put us on the world stage.” In just two years he’s transformed a pit of despair into a well of hope.
David Penfold, the region’s economic development manager, says the town now has a new problem: a shortage of skilled workers and labourers. He’s looking at programs to entice migrants and refugees. “Since Sanjeev took over and made the commitment to upgrade, and pretty much double the production of the steelworks, it has kicked off a lot of enthusiasm and positivity,” he says. “You’ve got that, as well as the solar farm, which is starting probably in November.” At times there haven’t been enough beds in town to accommodate the influx of tradesmen and they’ve had to stay at Port Augusta, 80km away.
The confidence is infectious: a new $145 million Chinese-backed solar greenhouse is in the pipeline, a $45 million four-star hotel is to be built on the foreshore, and early next year work will begin on a new high school, amalgamating the town’s three existing schools, to be built in an education precinct next to the Tafe and the University of South Australia campus. Whyalla’s population is projected to rise to more than 30,000 in the next three years. And a feasibility study is underway into the construction of Gupta’s state-of-the-art mega-mill. It would cost many billions of dollars and would be the only new steel mill of its type and size built outside China in the past few decades. If built, it would triple Australia’s steel production and Whyalla’s population would double in size.
The big question is, how does Gupta pay for all this – the development of a new electric car, the new solar farm, the new mega-mill?
When I mention the newspaper articles that query thesustainability of his model, he replies with a hint of annoyance. “Look mate, I’ve had this forever, right. Ever since I started investing in industry there’s always been questions about two things: does this model work, and why can you do it when the big giants failed? The other question is, where do you get the money from?” He says the same questions came up when he bought his first small steel plant “to now, you know, where we have 30,000 people and are one of the top 10 steel producers globally. That question has always been there.” Gupta says that while there are detractors and doubters, “we have a big following as well… we have a lot of believers, especially our own workforce. That is the greatest support.”
When I ask the company for clarification on how his global expansion has been funded, a spokeswoman says: “GFG is a global alliance across 30 countries with an annual revenue of over $US20 billion… each of our operating geographies drive value from the businesses we have invested in and the products and revenue made in those jurisdictions is used for further growth initiatives.”
Last year it was announced that GFG Alliance had plans to float part of its Australian arm of Liberty OneSteel, Infrabuild. And then last month it emerged Gupta had to inject $150 million into the business after the planned $1 billion sharemarket float was put on hold after a disappointing debt-raising. If the float eventually succeeds, Gupta will be forced to lay his cards on the table and investors will want to know the answers to all those questions pesky journalists have been asking for the past few years about the flow of money.
But he does seem to have a great knack for buying cheaply at the bottom of the cycle. Gupta has said that in 2018 the old Arrium group made about $700 million, more than he paid for the entire company the year before, thanks to recovering steel prices. He’s also been good at squeezing assistance from governments. The Whyalla rescue came with a $50 million package from the then Labor state government; Gupta has said ongoing support would likely be required from the South Australian and federal governments. In August it was reported that the company had again gone cap in hand to the Federal Government for more assistance for its Whyalla expansion. The company says it had been in discussion with state and federal governments since it purchased Arrium in 2017 “given the critical nature of the business to South Australia and the importance of steel making nationally.” It will continue “to assess the levels of support required to deliver a transformation”.
But if Gupta can pull it all off, this government assistance will seem like loose change.
This morning a second jet-load of Gupta’s seniorexecutives arrive in Whyalla. We gather in the Middleback Arts Centre, named after the ranges that feed his steel mill with iron ore. South Australia’s Governor Hieu Van Le warms the crowd. Sitting next to me, dressed in fluoro, mill worker Mark Wakelin tells me he moved back to Whyalla from “over east” because he wanted to be part of its transformation. “You only get one hometown, one first footy club, the place where you learnt to ride a bike,” he says. “Whyalla is that place for me. I want to see it prosper again and I reckon it will.”
A couple of dozen beaming high school kids take their seats on stage in T-shirts that read: “Test Pilots.” They are the first graduates of a STEM mentoring program sponsored by Gupta’s charity, the GFG Foundation, that he hopes to roll out around Australia. The billionaire takes to the microphone and delivers an impassioned speech. “It gives me great heart-swell to see these young people… over the last 20 or 30 years, especially in the UK and Australia, we’ve seen a great drain of industry. As a result of that we’ve also seen a decline of interest in industry in the next generation.” He says he wants to inspire these kids to think of a career in manufacturing. “The journey is not quick – the rejuvenation, here in Whyalla and Australia, will take a long time but it cannot happen without the next generation.” He and the governor shake hands with and put a cap on each kid. I suddenly realise Gupta has flown two jet loads of his most senior staff from Sydney to Whyalla to watch him hand out caps to school kids. I sit here thinking, “This guy is either mad or a genius. Possibly both.”
He recently sent his family back home to London, from where he will oversee his new European acquisitions, but he tells me he’ll be flying back here every few weeks to see through his grand plans for Whyalla and Australia. “There’s no getting rid of me,” he says. “I’m in for the long haul.”