BlueScope a bright spot on Sanjeev Gupta’s clouded horizon

Sanjeev Gupta. Picture: Bloomberg

BlueScope Steel’s earnings upgrade offers a welcome fillip for embattled British industrialist Sanjeev Gupta ahead of a NSW Supreme Court hearing next week to hear the first round of arguments over a Credit Suisse application to wind up two key Australian companies.

The BlueScope upgrade suggests the jewel in Mr Gupta’s crown, his Australian Infrabuild Business, is on track to improved earnings before interest, tax, depreciation and amortisation of about $300m this financial year, up from about $200m last year.

The soaring iron ore price, still hovering at $US190 a tonne, will be lifting the profits of his Liberty Primary Metals group, which includes the Whyalla steelworks in South Australia, and metallurgical coal operations in NSW for Tahmoor.

While LPM is usually, and rightly, considered Mr Gupta’s most difficult Australian business, the fact it exports about six to seven million tonnes of iron ore a year suggests it is probably more profitable than its more stable peer Infrabuild.

Its iron ore is believed to take a discount of about 10 per cent to the benchmark iron ore spot price, and its costs are higher than many of its West Australian competitors. But even so, at current prices the mine could easily spit out $300m-$400m in free cash in the half year to the end of June — a handy figure when you face a court hearing to argue over whether your business should be wound up.

Mr Gupta’s GFG Alliance said late last week, after NSW planning authorities approved a 10-year mine extension to the Tahmoor colliery, his LPM group was in “advanced stages of due diligence” over a refinancing.

The British industrialist is believed to have financing offers for his Australian business from multiple lenders, including Bain Capital, Oaktree Capital and White Oak Global Advisors.

White Oak is likely to be Mr Gupta’s preferred option, as it has previously extended working capital facilities to GFG and is believed to still have exposure to Mr Gupta’s European assets, lessening any incentive to take advantage of business glitches to seek control of GFG’s assets.

The Credit Suisse application to wind up Tahmoor Coal and OneSteel Manufacturing, both part of the LPM group, will be heard on May 6, and it is not clear whether a debt deal will be complete by then — or whether Credit Suisse or the liquidators of Greensill Capital, owed billions by GFG across the globe, would have any say over the outcome of the negotiations.