Steeling for a fight as administrators look for $6.5bn from Sanjeev Gupta’s GFG

Sanjeev Gupta, head of the GFG Alliance. Picture: AFP

Sanjeev Gupta is reportedly on his boat off Dubai as the Greensill administrators circle their wagons, trying to recoup some of the circa $US5bn ($6.5bn) and counting owed to Greensill.

Gupta has already said he won’t repay his debt, and an aggressive legal team may well move quickly to lodge a claim against Greensill and Credit Suisse.

As this fight rolls out from Germany and the US, the latest surveys say Australian business is doing well, the economy is back to pre-COVID levels and vaccinations have made the pandemic tolerable.

Who would have thought Bundaberg boy Lex Greensill and Sanjeev Gupta would prove to be the pivotal collapses that bring the global house down with it?

There are small municipalities across Germany tied up in the mess as Insurance Australia Group and others come out to distance themselves from the snafu — and who knows what other dominoes are set to topple.

The answer would seem to be that the damage should be contained because the known large exposures are few, in a highly liquid global financial market and the Greensill tentacles are relatively contained.

The doomsayers can, of course, spin the tale much better in largely unregulated markets where the known unknowns lurk.

If you could put the debt to one side (a big if), Gupta’s Australian assets are performing well — so one course of action for Gupta is to file a claim against Greensill and Credit Suisse.

He may argue his business was going OK until they let the team down and went into administration.

If that hadn’t happened Gupta would have been fine, so who’s fault is it anyway?

The claim would need to be settled before the administration was settled, so Gupta, as improbable as it might sound, would have some leverage over Greensill.

Gupta has already told his troops: “We are the victims here — it’s the financiers who made mistakes.”

It’s early days but suffice it to say Gupta will struggle to find someone to finance him right now no matter how well the assets are doing in Australia.

None of which will be of much solace to the fold at Whyalla, given Gupta used debt nearly four years ago to buy the Whyalla mill for $US700m with $US600m owing.

When his money was accepted by the Arrium administrators in 2017 there was of course no guarantee he would be solvent three years later.

The steel assets could be floated for $1.6bn but right now the game of cloak and dagger is just beginning and Sanjeev Gupta is not planning to hand over the keys without a fight.  

Focus on Vocus

Vocus Group CEO Kevin Russell want to stick with the company under its new ownership. Picture: Hollie Adams

Macquarie and Aware Super have done well with an agreed bid for Vocus at an enterprise value of $4.6 billion which reflects the company’s troubled past and the reality that it is a long way short of being a pure play.

The company’s stock price increased 8.7 per cent to $5.43 a share just below the $5.50 a share agreed price which supports the board’s decision to sell at these levels.

The stock price hasn’t been at these levels since 2016 in the wake of the Vocus and M2 merger. That had an equity value of $3bn, compared to $3.5bn for this deal.

Chief Kevin Russell declared last month the three year turnaround in the company was now complete so he has done what he sees as the hard work.

This makes you wonder why chair Bob Mansfield wants to hand over the keys so cheaply to Macquarie.

Russell it should be noted is keen to stay on under the new owners so he will enjoy the upside going forward.

Vocus sells itself as a “specialist fibre and network solutions provider” but the fabled network only accounted for 38 per cent of revenue last half with the retail services division the biggest producer at $360 million or 40 per cent of revenue.

The table is tipped when you look at earnings with the network earning $128.7 million against $32.7 million and these figures explain why Macquarie is picking up valuable network and data services so cheaply.

Macquarie is a rumoured long term player for the NBN when it is privatised which means the consumer business will have to be sold first to an Aussie Broadband or similar company.

The planned float of the New Zealand business is likely to still go ahead and with revenue of $210m and earnings of $35.7m it is good business.

The deal then is a classic private equity play with upside from combining asset sales.

The old M2 vehicle which merged with Vocus five years ago has delivered when you consider the merger ratio of 1.65 Vocus shares for each M2 share has delivered $9.08 a share on this transaction.

The deal is of course all about data and Vocus is a powerful regional player which fits like a glove with the expanding NBN footprint.

Data is the new minefield and that explains why Macquarie and Aware Super have acquired the asset but for now the cleaning work continues.