It may be almost summer, but the patchwork of snow still covers the top of Ben Nevis and the neighboring peaks, which are crowded around Fort William, the second largest city in the Scottish Highlands.
The mountains and Loch Linnhe in the distance are like a black carpet extending from the foot of the mountain to the sea. They are the places where you least expect to find a large industrial factory.
However, one is the last in the UK. The Lochaber smelter produces 48,000 tons of aluminum each year, and its turbines are supplied by water from the lake above and run in a tunnel that runs in a 12-mile curve around Ben Nevis.
It was built in the 1930s and is a remarkable engineering feat. In the five years since he bought it, metal tycoon Sanjeev Gupta, owner of the smelter and surrounding countryside, has achieved similar engineering feats, this time financially.
He raised more than £600 million from a facility facing closure, thanks in large part to the financial support provided by the Scottish government. Mr. Gupta’s spokesperson would not comment on the use of the money.
How Mr. Gupta did it — skillfully sifting value from a set of unattractive assets, and wisely obtaining financial support from politicians eager to maintain employment — followed his efforts to build a world-wide The model used in business empires.
He and his family bought steel plants, mines, power stations and smelters from Australia to the Czech Republic. Most people faced an uncertain future and possible closure before his arrival.
Politicians praised him as the savior, and he provided a welcome and timely case for investing in greener steel and aluminum manufacturing methods.
Now he faces his own battle for survival. The funding that drove his rapid rise came from Greensill Capital, a supply chain finance company that went bankrupt in March. Mr. Gupta is now struggling to find new sources of funding, and some of his companies are facing winding-up applications from creditors.
What is imminent is an investigation into the Serious Fraud Office (SFO) of his business empire, GFG Alliance, which will investigate suspected fraud, fraudulent transactions and money laundering, with special mention of the relationship with Greensail. GFG said it will fully cooperate with the investigation.
In Scotland, political opposition to the support of ministers is growing. If Mr. Gupta’s refinancing attempt fails and his empire collapses, then huge bills may fall to the government’s feet.
Scotland is a world pioneer in the use of hydroelectric power to produce aluminum. In the last years of Queen Victoria’s reign, the first smelter of the British Aluminum Corporation was put into use. The Fort William factory opened in 1929 and was the last aluminum smelter in the UK.
The smelter went through several rounds of owners until it was acquired by mining giant Rio Tinto in 2007. Less than ten years later, Rio Tinto decided to withdraw.
It puts factories, hydropower plans and related land-a huge estate covering 114,000 acres, one of Scotland’s largest estates-for sale.
Whether the smelter will continue to operate is far from certain. According to world standards, it is small and relies on imported bauxite-the raw material ore for smelting aluminum-rather than having its own source nearby.
“As far as I know, there is only one smaller smelter in the world — one in Cameroon,” Ami Shivkar, an aluminum expert at consulting firm Wood Mackenzie, told the BBC.
“Lochaber produces nearly 50,000 tons a year-but many competitors produce hundreds of thousands of tons. This is just a drop in the ocean.”
Many bidders are interested in hydroelectric power plants, and few bidders are interested in smelters. Brian King, who used to run the plant for Rio Tinto, is now the chairman of Alvance UK, the aluminum division of the GFG Alliance, and he is closely related to the sale.
“Only two bidders have any real interest in the smelting business. One of them is purely speculative and the other is GFG,” Mr. Shivkar said.
The Scottish government already has experience dealing with Gupta and has provided loans to help him purchase two threatened steel plants in Dalzel and Clydebridge.
Almost immediately, a financial restructuring began to derive some value from the newly acquired assets. Greensill Capital was drafted to issue bonds to New York City investors—mainly loans—that would be repaid by a portion of the future income from Kinlohleven’s second hydroelectric power plant, which is along with the legacy.
According to marketing documents seen by the BBC, these bonds were issued through a legal entity called Wickham and it is understood that £229 million was raised, most of which went directly to Rio Tinto as part of the purchase price.
Another more complex bond transaction-also arranged by Greenseal with the assistance of Wall Street bank Morgan Stanley-requires explicit support from the Scottish government.
The BBC also saw the marketing document for Project Boots, which outlined a complex structure. Gupta has made an “irrevocable” commitment to pay quarterly returns to investors in bond issuance.
The pledge is guaranteed by the Scottish government. In return, the Scottish government collects fees and guarantees for Gupta assets, mainly companies that own hydropower assets. Quarterly payments will continue, and the documents clearly indicate that even if the power station fails or the smelter cannot afford it.
The government’s support for commercial bond issuance is unusual-the document tells potential investors that this is “a rare opportunity to invest in [sic] clear and irrevocable Scottish government-guaranteed fixed income assets”.
“I have never seen such a transaction,” said Professor Florin Vasvari, head of the accounting department at the London Business School. “Bond issues are very common, but usually there are only two parties-there are several independent companies in the structure, and there is a sovereign guarantee.
The government’s support of private companies may violate state aid regulations, but after Ernst & Young’s investigation, the Lochaber transaction was approved by the ministers and the transaction met the value for money and state aid tests.
Its report-the golf project-has been made public, but due to commercial sensitivities, almost all reports have been blacked out. The amount raised from the bond issuance has not been publicly confirmed, but the report of the golf project stated that it was valued at 259 million pounds.
However, this is not the end of fundraising. Last year, Kinlohleven’s power plant was sold to infrastructure investor Equitix. According to city sources, the cost was about 150 million pounds.
Simec is a branch of the GFG Consortium that deals with power projects, and another project is underway, seeking planning permission for a large wind farm in Glenshero, Inverness.
Local environmental organizations, such as the John Muir Trust, are responsible for caring for the wild areas of Scotland, including Ben Nevis, and are firmly opposed to wind farms, saying that their construction and scale will destroy valuable landscapes.
The plan has been rejected by the Highland Council, and its fate will now be decided by the Scottish government.
The financial assistance provided by the Scottish government has received broad political support. The Conservative MSP Murdo Fraser, who had only recently served as the shadow finance minister, was a member of the committee that approved the bill.
“People are very worried that the smelter may close, so I understand that the government will do its best to ensure its future. It is located in an economically sensitive area of ​​the country,” he said.
Mr. Fraser said that the question now is whether Mr. Gupta has fulfilled the promise he made in exchange for financial support.
“He promised to build a new aluminum wheel factory, but it didn’t come true. There were promises to make the land belong to the community, but they didn’t come true.
“Given the fact that GFG can raise so much extra cash, the Scottish government has doubts about whether taxpayers are sufficiently prudent in funding.”
The Scottish government said in a statement that it has intervened to rescue facilities of “strategic importance” and has provided the same support to “any bidder with a long-term industrial operation plan for the Lochaber enterprise.”
It stated that no guarantee has been requested so far, and the ministers have adopted guarantees that allow them to demand certain assets in the event of bankruptcy of GFG.
“If we built it, it will now be idle,” said Mr. Jin, who emphasized that GFG has been running the factory for many years when aluminum prices were low and at a loss.
GFG is currently formulating a factory plan to produce aluminum billets, special-shaped tubes and metal square sheets for extrusion manufacturing at higher prices. It will cost approximately £90 million and will employ approximately 60 employees.
Fort William has wider dissatisfaction with the way Mr. Gupta manages the large tracts of land acquired by the smelter.
The promise he made to the Scottish government at the time of the transaction-the BBC saw part of it again-made it clear that he would return the land to the community.
The document said: “We appreciate that community ownership is at the core of the Scottish Government’s community empowerment agenda.” It added that Mr. Gupta pledged to work with local groups to “conduct community land transactions on a significant portion of it”.
John Hutchison, chairman of the East Lochaber and Lagan Community Trust mentioned in the pledge, said that he has not really tried to fulfill his pledge: “Five years have passed and we are here. We are still waiting.”
“East Lochaber and Laggan Community Trust did not make recommendations to us that we could consider,” Julia Stoddart, chief operating officer of Jahama Highland Estates, a GFG company that manages the land, told the BBC.
The future of the smelter—and the other assets that come with it—is now inextricably linked to the broader destiny of Mr. Gupta’s empire. As a result of SFO’s investigation, his negotiations to find new investors have become complicated.
California investment fund White Oak Global Advisors has agreed to invest some money in its Australian steelmaking business, but similar negotiations for White Oak’s investment in the UK have stalled.
Sources in the city said that although many hedge funds and competitors are interested in buying assets or loans, the situation has become complicated because Greensill and its creditors, especially the Swiss bank Credit Suisse, have issued winding-up notices to the two companies. GFG company.