Pre-election bailout: Does Whyalla deserve to be rescued?

The government’s response to the demise of the Whyalla steelworks and regional airline Rex reads like a bailout cheat-sheet for Australian companies and industries teetering on the edge.

Firstly, if your company is about to go broke, make sure your problems surface just before an election.

Secondly, your chances of receiving financial assistance from the government are greatly enhanced if you operate in what is considered a nationally important industry. It really helps if you employ considerable numbers of blue-collar workers, too.

And if your company supports regional Australia or some other politically important cohort, you rise to the top of the list.

Prime Minister Albanese with steelworkers at Whyalla.Credit: AAPIMAGE

This is not to suggest the government shouldn’t support particular industries, but it needs to pick its marks. It’s a bad look to be bailing out businesses that have been poorly managed – even if the help is not actually going to shareholders or even creditors, or is a short-term bridge to finding a buyer.

The corporate governance of both Rex and Whyalla has been understandably questioned.

Last year, the nation’s corporate regulator, the Australian Securities and Investments Commission, sued Rex for misleading and deceptive conduct and contravening continuous disclosure obligations.

Whyalla was acquired by British industrialist Sanjeev Gupta’s GFG Alliance from the hands of administrators in 2017. It was a hugely celebrated event, saving jobs and the massive steelworks, with the added benefit of investment in its green transformation.

Only it didn’t happen, and now a slew of creditors including those waiting for royalties have formed a conga line.

Complicating matters, Gupta businesses were embroiled in the controversial collapse of supply chain finance firm Greensill Capital, which it used to fund its operations.

We will soon see if there is anyone who shares the government’s optimism for the rosy future of steelmaking in Australia.

The Gupta Family Group Alliance (GFG) – the collection of companies headed by Gupta – remains subject to a criminal investigation by the UK Serious Fraud Office into suspected fraud linked to the Greensill collapse in 2021.

And as recently as last week, while workers were being sent home from his company’s NSW coalmines and Whyalla creditors remained unpaid, Gupta secured approval to renovate his $34 million Sydney mansion.

Having collapsed now twice in less than 10 years, Whyalla has undergone a demise that prompts questions: is this just a pilot error, or is this steelworks simply not viable?

Suggestions that Australia’s large and solvent steel manufacturer, BlueScope, may play a part in the revival of Whyalla are being floated. But it would have to be on terms financially advantageous to BlueScope, with the risk being borne by the state or federal government.

As it is, there won’t be a queue lining up to take Whyalla from the hands of administrators.

Decades of globalisation resulted in the abandonment of much of Australia’s manufacturing because we lacked the international competitive advantage.

Car-making is a case in point. The decision by the Australian government to quit decades of support for offshore car companies to manufacture here was controversial, lambasted by unions, and decried by interest groups, but was nonetheless a brave and correct call.

In the federal and South Australian governments’ decision to pump a combined $2.4 billion into keeping Whyalla, we look to have come full circle. This push for industrial sovereign certainty will be deemed madness by economic pragmatists and productivity evangelists.

The timing of the government rescue of Whyalla is even more staggering, given Australian steel manufactures are having to deal with the financial threat of more cheap Chinese steel landing on our shores, thanks to US President Donald Trump’s imposed tariffs on China.

But the government has deemed steel-making in Whyalla to be of national importance.

“We want to see a future for steel in Whyalla. We are big believers in the future of Whyalla, we are big believers in the future of the Australian steel industry and Australian manufacturing more broadly,” Treasurer Jim Chalmers said this week.

With the administrators searching for a buyer, we will soon see if there is anyone who shares the government’s optimism for the rosy future of steelmaking in Australia.

The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.