Government warns against break-up of Sanjeev Gupta’s Australian industrial empire

The Morrison government has warned against a carve-up of Sanjeev Gupta’s Australian industrial empire.

Uncertainty surrounds the future of the Whyalla steel works. Picture: Tom Huntley

The Morrison government has warned against a carve-up of Sanjeev Gupta’s Australian industrial empire as concerns mount over the future of businesses including Whyalla’s steelworks following the collapse of his largest lender, Greensill Capital.

Mr Gupta has urged staff to preserve cash as he scrambles to refinance Greensill debt, and with several private equity suitors circling, Finance Minister Simon Birmingham said the government was opposed to any potential break-up of assets should conditions force the industrialist into a fire sale.

“(It) would not be in anybody’s interests for the integrated steel businesses of the GFG group in Australia to be broken up. It wouldn’t be in the workers’ interests, it wouldn’t be in Whyalla’s interests, and I don’t think it would be in Australia’s interests either,” Mr Birmingham told The Australian.

Mr Birmingham has briefed Prime Minister Scott Morrison about the potential fallout from the unfolding crisis and remains hopeful Mr Gupta can secure a high-stakes refinancing amid worries about the vulnerability of assets like Whyalla compared to its most profitable business InfraBuild.

Fears are growing over the future of thousands of Australian workers just five years after Mr Gupta was hailed as a saviour for rescuing Whyalla from administration as part of a rapid-fire $15bn global acquisition spree.

The British industrialist told staff in a memo late on Friday he was still negotiating a temporary repayment standstill with Greensill, in a bid by the steelmaker to prevent its debts being called in ­immediately.

While “enthused” by the amount of refinancing offers, Mr Gupta said in the internal email the process would take some time to organise given the scale of its operations.

“Hence, we are asking all of our businesses to take prudent steps to manage their cash positions carefully and reduce their call on group resources while this process takes place,” Mr Gupta said.

Greensill, which filed for insolvency a week ago, suffered a fresh setback after private equity giant Apollo Global Management abandoned talks with administrators Grant Thornton to buy parts of the ailing finance business.

Apollo was in exclusive talks but walked away from a proposed $US59.5m deal to acquire Greensill’s intellectual property and IT systems, as well as its admin services business, Finacity, according to the Financial Times.

Sanjeev Gupta has urged GFG staff preserve cash as he scrambles to refinance Greensill debt. Picture: Bloomberg

Further reports revealed the steel tycoon and Greensill also exploited a British COVID-19 state guarantee scheme for struggling companies to extract £400m ($720m) of taxpayer-backed loans — eight times the limit, according to The Sunday Times — with the borrowing spree understood to have sparked alarm in the British Treasury.

Lex Greensill also reportedly warned major lender Credit ­Suisse for weeks that Greensill was having trouble securing fresh insurance to replace lapsed policies.

Greensill relied heavily on insurance as part of its business model, lending money to companies to pay their suppliers, with insurance in place to protect it against defaults. But the decision by its insurers to not renew its policies, which lapsed on March 1, led Credit ­Suisse to freeze $US10bn worth of funds associated with its financing activities.

The Swiss bank “was aware of the difficulties that Greensill Capital was having in renewing the TBCC policies and the likely consequences of a failure to renew”, the financier said in documents reported by Bloomberg on Saturday.

Mr Greensill described the events that led to the collapse of his firm as “something of a perfect storm”, according to the documents.

Concerns over regulatory governance were also raised on Sunday after the FT reported Greensill borrowed almost €100m ($154m) from its sister bank in Germany in 2020.

The Australian corporate regulator is also circling Greensill following revelations the company sought restructuring advice — including on a potential insolvency — within weeks of spruiking a $US600m ($771m) capital raising ahead of a much-hyped IPO.

Questions are now swirling over whether the capital raising was a rescue package rather than a fund injection to pay for the next stage of Greensill’s growth.

Grant Thornton’s British and Australian arms are running two separate administrations over Greensill’s insolvent local and British operations, with its first creditors meeting scheduled for this Friday.

Apollo’s decision to walk away comes days after talks between the two parties broke down when Taulia, Greensill’s technology partner for a number of high-profile clients, secured $US6bn in funding from a consortium led by JPMorgan to keep its platform running.

The San Francisco-headquartered company provides the platform for companies to charge their smaller suppliers a fee for early payment. Greensill had been the financier for a range of Taulia’s clients, leading the company to source additional funding following Greensill’s collapse.

But Taulia’s entire business was not exposed completely to Greensill’s insolvency, with the US group ending its exclusivity arrangement with Greensill in 2019.

Since then, Taulia has embarked on a multi-funder model to diversify its funding and give clients choice over financiers.

The end of Taulia’s exclusivity arrangement with Greensill was a speed hump for Apollo’s plans to buy most of Greensill’s assets. As previously reported by The Australian, Taulia had been in discussions with Apollo and was happy to add it to its list of funders but would not return to an exclusive arrangement, which would have added more value to an Apollo/Greensill deal.

The Australian arm of Greensill was on Tuesday placed into administration after it warned it was in “severe financial distress” and unable to repay a $US140m loan to Credit Suisse.

Additional reporting: Jared Lynch