Employees owed $190m from GFG Alliance, creditors meeting told

About $1.34bn is owed to thousands of creditors linked to the Whyalla steelworks, administrators have revealed, adding the business had been ‘running on empty’.

South Australian Premier Peter Malinauskas at Whyalla Hose and Fitting Services on Monday. Picture: Brett Hartwig

The GFG Alliance entity which ran the Whyalla steelworks owes a massive $1.34bn in claimed debts to thousands of creditors administrators KordaMentha has revealed, while flagging that the more than half a billion claimed by GFG itself is being treated as a disputed claim.

Meanwhile GFG Alliance executive chairman Sanjeev Gupta, who was welcomed as the town’s saviour in 2017 when he first bought the steelworks, but who is now held in low regard due to a history of over promising and under-delivering, as well as not paying contractors’ bills, blamed his group’s financial woes in part on the high level of media coverage his business dealings had garnered.

Mr Gupta said in a statement read to the creditors’ meeting that GFG’s efforts to recapitalise the business – the company had been seeking to raise $US100m in new debt to bail out the Whyalla operations, originally scheduled to be finalised by the end of December - were “delayed and impacted by heightened media speculation”.

A crowd of more than 100 creditors turned up to the first creditors’ meeting held in Whyalla on Monday, with another 330 attending online, with KordaMentha partners Mark Mentha, Lara Wiggins and Sebastian Hams setting out how the administration would progress.

Mr Gupta did not attend the meeting, nor did any of the other directors of OneSteel Manufacturing, the GFG entity which was placed into administration by the South Australian government on February 19.

Ms Wiggins told the meeting that $1.3bn in proofs of debt had been received to date, with $567m in debts being claimed by related entities in the GFG Alliance group, with those creditors including Mr Gupta’s long steel products company Infrabuild.

While the administrators were allowing these debts to be voted at the meeting, Ms Wiggins said they were being treated as disputed, and said they included an intercompany loan to related company Tahmoor Coal.

There was also a $144m claim from a related entity for what Ms Wiggins referred to as “alleged pre-paid sales” which would be tested as the administration progressed.

The South Australian government was owed $40.3m while employees were owed $189.7m, with Ms Wiggins saying many had been employed for more than 25 years and had significant annual leave and redundancy entitlements.

Mr Hams said when the administrators took over the steelworks, there was “a distinct and critical lack of stock”, including just three days’ supply of coke for the blast furnace.

There had also been “minimal repairs and maintenance over the past 18 months’’.

The company had just $8m in the bank which was not enough to make payroll.

“For a business that turns over more than $1bn that is just crazy,’’ Mr Hams said.

He also said that the money invested into the business by GFG in recent times had been “immaterial”.

“They just haven’t spent money on this business… it’s running on empty,’’ he said.

Mr Hams said BlueScope would be appointed as an expert adviser, with a focus on assessing the blast furnace’s operation in the short term.

Many workers at the steelworks had been employed for more than 25 years and have significant annual leave and redundancy entitlements, administrators said. Picture: Nicholas Williams-Chamarro / AFP

The steelworks was currently operating at an annualised production rate of just under one million tonnes of steel per year, less than the nameplate capacity of 1.2 million tonnes.

Mr Hams pointed out that Infrabuild is the main customer of the steelworks, taking about 800,000 tonnes of steel per year, and the various GFG companies also had shared services on the back end such as payroll and information technology.

Ms Wiggins said OneSteel Manufacturing had posted a pre-tax loss of $319.1m in the seven months to the end of January, and was losing about $1.5m a day.

Mr Gupta’s statement said while GFG was “saddened” by the SA government’s decision to put the steelworks into administration, his group continued to believe in the strategic importance of Whyalla and would fully support the administrators’ efforts to find a viable solution for the future of the steelworks.

The South Australian State Government pushed OneSteel Manufacturing into administration on February 19, after passing emergency legislation to ensure it had security over both the plant and the land it sat on.

The state and federal governments then announced a $2.4bn support package, including $100m in emergency support for contractors, $384m to run the steelworks while in administration, and $1.9bn to underpin the future of the steelworks longer term, with that money earmarked to modernise the steelworks and eventually turn it into a “green steel” operation.

SA Premier Peter Malinauskas said on Monday that while it was ultimately the administrators’ decision about who to select as the purchaser of the steelworks, the fact that there was a $1.9bn assistance package on the table from the state and federal governments meant that they would be a stakeholder in the process.

Mr Malinauskas said the administrators’ deliberations would be independent, but “quite distinct from that, government is able to use the $1.9bn we have on the table for a new owner to exercise an appropriate degree of influence so as to insure that the taxpayer’s interest is represented”.

“And the taxpayer’s interest is to ensure that we are making steel in Whyalla for the long term.’’

Mr Malinauskas said it would “reckless beyond comprehension’’ for a federal government to allow the nation’s steelmaking capacity to be lost, and that would not happen.

Mr Malinauskas said the government followed through with placing the steelworks into administration fully aware of Mr Gupta’s claim that his companies were owed hundreds of millions of dollars by OneSteel Manufacturing.

“We knew that all the way through ... it was very clear that there were a whole lot of intercompany loans that were going on within GFG,’’ Mr Malinauskas said on Monday.

“The decision that we made to put the business into administration was done with full consciousness of that. We knew what we were doing.

“Needless to say the government has gone into this fully prepared. I’m sure you appreciate what that means.’’

Mr Malinauskas said he suspected the administration could take as long as it did in 2016, which was a 17-month process.