June 28, 2019 / 11:14 AM / 21 days ago

GFG Alliance targets more modest $700 mln Australia IPO for steel unit- sources

* Aiming to list parts of Liberty Steel unit in Sept/Oct -sources

* Modest target than previously indicated -sources

* Listing would still be biggest on Australia bourse since July

By Clara Denina and Paulina Duran

LONDON/SYDNEY, June 28 (Reuters) - London-based conglomerate GFG Alliance is targeting to list parts of its Australian Liberty Steel business in a deal that could fetch about A$1 billion ($701 million), banking and industry sources close to the company told Reuters.

That is a more modest target than indicated when Executive Chairman Sanjeev Gupta said GFG was looking to list some parts of the unit and could sell only a 40 percent stake, which according to sources would value it at about A$2.5 billion.

But even at a smaller valuation, the listing would be the biggest on the Australian bourse since Viva Energy’s $4.86 billion IPO last July, Refinitiv data shows.

GFG is targeting September to list parts of the unit, two other people with direct knowledge of the plans told Reuters, without giving any details on the possible size of the deal.

Under the IPO plans, which could stretch to October, GFG will float the local distribution and recycling business of the steel unit, the two sources added.

GFG had bought Liberty for A$700 million from Australian steel firm Arrium after it went into administration in 2017.

The conglomerate is not expected to include the South Australian Whyalla steel making business and iron ore mines or any international business in the listing, the sources said.

The business will be renamed Infrabuild and GFG plans to keep a large stake in the company, the size of which is still being finalised, said the sources, who declined to be identified as the plans are not yet public.

While GFG did not respond to questions about plans for a Liberty Steel initial public offering, it said in a statement that as part of a broader business strategy, “capital market transactions are something that we may consider in the future”.

Sources said that the British billionaire, Gupta, had initially targeted a valuation close to A$5 billion for the Australian unit, but that was now looking unlikely.

The listing comes amid a slowdown in Australia’s housing market and construction industry, and it may struggle to attract robust investor appetite, the sources said, partly since the tired assets would need significant reinvestment.

“This will be a challenging IPO,” said investment analyst James Eginton at Tribeca Investment Partners.

“The big drawback is that crude steel manufacturing in Australia is a marginal business when you compare to the new facilities in China and much of Asia.”

THE GROUP

GFG is an umbrella group for the Gupta family’s investments in commodities trading, mining, metals manufacturing and power generation operations.

It has grown rapidly from a metals trader, spending billions in recent years buying often troubled metals manufacturing facilities from Britain to India and investing in renewable energy assets, raising questions over funding for its rapid expansion.

GFG subsidiary Liberty House currently operates the businesses slated for the Australian float, as well as seven European plants it acquired from ArcelorMittal earlier this year.

JPMorgan, Deutsche Bank and Morgan Stanley are handling the Australian IPO, the sources said. Representatives for the banks declined to comment.

GFG said in January it had appointed Credit Suisse to help it plan an IPO of Liberty Steel USA. ($1 = 1.4438 Australian dollars) (Reporting by Clara Denina in London and Paulina Duran in Sydney, additional reporting by Melanie Burton in Melbourne; Editing by Stephen Coates and Himani Sarkar)

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