GFG Alliance appears to be paying Whyalla businesses on time despite its financier’s collapse
The financial backer of Sanjeev Gupta’s GFG Alliance has collapsed – but its profitable Whyalla operation appears to be paying its bills.
GFG Alliance appears to be paying its Whyalla suppliers on time, and does not use now-failed financier Greensill Capital for supply-chain payments in South Australia, the state’s small business commissioner John Chapman says.
The Australian arm of Greensill, founded by Bundaberg-born businessman Lex Greensill, has been placed into administration after it warned overnight it was in “severe financial distress” and unable to repay a $140m loan to Credit Suisse.
Sanjeev Gupta’s GFG Alliance, which bought the Whyalla steelworks and iron ore operations out of administration in 2017 for a rumoured $700 million, is seen as most vulnerable to Greensill’s collapse, with the financier backing Gupta’s rapid global expansion in recent years.
Mr Chapman said Whyalla businesses were currently operating on a “business as usual basis”, but were keeping a close eye on what was happening with GFG and Greensill.
“From the people I’m speaking to there is a level of uncertainty, but people are getting on with business,’’ Mr Chapman said.
“With events overseas we’re just trying to ascertain what the impact is going to be on GFG as is everyone at the moment.
“In terms of their payments we haven’t had any issues this month, and if there were going to be, normally we would have heard by now, so I’m assuming the payments are going through the system, which is good.’’
Mr Chapman said it was his understanding that GFG’s suppliers in Whyalla were not being paid by Greensill, which had been financing GFG in part through supply-chain financing. That involves suppliers being paid early in return for accepting a discount.
Mr Chapman has in the past successfully lobbied for GFG to pay on time and said he believed GFG had looked at the Greensill option but it was not taken up in Whyalla.
“My understanding is that a couple of years back there was a good look at the supply-chain financing but they couldn’t make it work at a local level and as far as I’m aware all of the businesses just deal directly with GFG and their accounts area. That’s good news in that regard,’’ he said.
Mr Chapman last week wrote to Mr Gupta seeking assurances that payment terms for South Australian businesses would not change.
“I haven’t heard back as yet but I’m sure I will hear back in due course,’’ he said.
News Corp Australia has contacted GFG Alliance to confirm the payment arrangements were as understood by Mr Chapman.
Australian Workers Union SA branch secretary Peter Lamps said the 1500 workers at the Whyalla operations were naturally concerned, but with both the steelworks and mines currently running profitably, it was a much different scenario to when Arrium failed in 2016.
Mr Lamps said it was their understanding that all workers’ entitlements were secure and given the complicated nature of the international business dealings at play, the true picture would emerge “over a number of weeks rather than days’’.
“Given the fact that Greensill is now in insolvency, as far as next steps are concerned, we’re relying on how the administrators deal with the entity and whether or not creditors, insurers, financiers, are prepared to allow (GFG) to refinance themselves.
Mr Gupta held a “Big Reveal” at Whyalla in 2018, promising major infrastructure projects such as a $600 million upgrade of the current steel mill, a possible 10-million-tonne steel mill and had earlier announced a $US1 billion, 1 gigawatt energy plan involving 780,000 solar panels to be installed at Cultana, just outside Whyalla.
The solar farm, while approved, is yet to be built, with aerial photography indicating that the project remains in the pilot phase.
Other plans for Whyalla have changed over time, with Mr Gupta’s Greensteel ambitions, which involves steelmaking eventually being converted to using hydrogen as a fuel, taking centre stage.
Mr Gupta told News Corp Australia in December the Whyalla steelworks would be profitable from the start of this calendar year, a feat even he didn’t think was possible when he bought the operations.
The associated iron ore mining operations have always been profitable, it is understood.
In a statement on Tuesday, GFG said its “operations were “running as normal”.
“Our core businesses continue to benefit from strong market conditions generating robust sales and cash flows. Our operational efficiency program has improved profitability and we are making progress in our discussions with financial institutions that can help diversify our funding. We are keeping our employees up to date and will provide further updates as we deliver our plans.”
Whyalla mayor Clare McLaughlin said in a statement the council continued to have faith in GFG.
“We continue to be reassured by GFG Alliance that its Australian businesses – including Whyalla – are performing strongly and benefiting from strong steel and mining markets,’’ she said.
“Returning their local operations to profitability in the past 12 months is a major achievement and a sign of their commitment to our city.”
On the Greensill front, the fallout is, as yet, unclear.
Grant Thornton was appointed as the administrator of Greensill’s Australian operations on Tuesday morning. This follows Grant Thornton being appointed to the head company in London overnight.
It comes after Greensill was hit by “defaults” from GFG Alliance.
In a statement, the administrators said it was possible that Greensill could be carved up.
“The joint administrators are in continued discussion with an interested party in relation to the purchase of certain Greensill Capital assets. As these discussions remain ongoing, it would be inappropriate to comment further at this time, the administrators said.
Mr Byrnes said: “We are working closely with the UK administrators in relation to next steps in the administration process”.
“We are not able to comment on any individual customer’s position at this stage. GCUK, as the provider of finance for the Greensill Group via its supply-chain finance working capital products, is insolvent and is now in administration. The UK administrators will write to creditors with an update shortly.”
The administrators of Greensill Capital in Australia will convene the initial meeting of creditors within eight business days. A Greensill spokesman in Australia was directing all inquiries to Grant Thornton.
Mr Gupta’s metals and mining empire is seen as most at risk from the loss of financing facilities associated with Greensill, with the company having financed GFG’s acquisition of a string of global assets, including bankrolling the €740m ($1.14bn) acquisition of ArcelorMittal’s struggling European steel mills by Mr Gupta’s Liberty Delta in 2019.
Greensill has also supplied ongoing funding through supply chain financing services to Mr Gupta’s Liberty Primary Metals operations in Australia. The news of increased scrutiny of his international borrowings comes as the Australian Workers’ Union held emergency talks with GFG’s Australian management, seeking assurances over the future of industrial facilities including the Whyalla steelworks.
The administration caps a crisis-hit month for Greensill, whose collapse risks more than 50,000 jobs – including over 7000 in Australia – across the group and its customers.
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