Gupta imbroglio stokes speculation of an SGH transaction

Speculation is mounting Kerry Stokes is interested in InfraBuild. Picture: Philip Gostelow

As the business interests of Sanjeev Gupta continue to attract plenty of attention, there’s also a growing amount of discussion in the market about the intentions of billionaire Kerry Stokes.

While speculation mounts about the Tasmanian and federal governments moving in on the Bell Bay manganese smelter in the same way the South Australian government did with the Whyalla steel works, there’s talk that the Stokes-backed SGH is focused on a substantial transaction.

Some think it could be Mr Gupta’s InfraBuild.

Bell Bay is owned by Mr Gupta’s company Liberty Steel, as was Whyalla before it collapsed.

It is part of Mr Gupta’s global business, GFG Alliance, which is facing financial pressure, prompting the market to brace for it to unravel at any time.

Last week, it emerged that the Tasmanian government had been working with Deloitte on options for Bell Bay, fuelling speculation it may call in its loans on the asset of between $20m and $30m.

Also playing a part could be the federal government.

It would come almost a year after the Whyalla steelworks, which remains for sale through KordaMentha, was placed into administration after it owed the government tens of millions of dollars in unpaid royalties.

There’s divided opinion in the market as to whether the government acts on Bell Bay, because at stake is about 800 jobs – far less than Whyalla that supports more than 2000 jobs indirectly.

The reason it all could be relevant for SGH is that the more the Gupta empire unravels, the likelihood grows that the Indian-born British businessman loses his grip on his prized asset, InfraBuild.

Many believe the purchase of the business is an obvious one for SGH, should InfraBuild be available for sale.

InfraBuild former chief executive Vik Bansal is an SGH director and runs portfolio company Boral.

The chances are it is likely underinvested in and there would be plenty of upside.

And it’s not a public company – SGH is adverse to making public takeovers, rather choosing to buy stakes in businesses and creep up the register.

It may be another target SGH is looking at, but most in the market believe InfraBuild would make perfect sense.

Mr Gupta has been a reluctant seller, but no doubt the Australian government would be keen for the business to find its way into the hands of an Australian company because it is one of Whyalla’s largest customers.

One way the Ryan Stokes-led SGH Group (previously Seven Group Holdings) could gain control of InfraBuild is through buying debt off its lenders or agreeing to a deal with lenders to involve it in an InfraBuild transaction.

Credit Suisse, controlled by UBS, is known to be one of the company’s major lenders; there’s litigation afoot overseas as to whether lenders to other parts of the GFG Alliance assets have security on the InfraBuild business.

InfraBuild is Australia’s only fully vertically integrated steel manufacturer, spanning scrap metal recycling, steel manufacturing and downstream distribution.

It produces long steel products, including reinforcing bar, reinforcing mesh, tubular and hollow sections, merchant bar and wire products for customers in the infrastructure, building, construction, rural and mining sectors.

The business produces 1.4 million tonnes of recycled steel across the country annually through its electric arc furnaces and generates $4.4bn of annual revenue.

It posted a $250m annual loss on the back of its high debt levels. When talk surfaced that InfraBuild was for sale or float in 2022 through Barrenjoey, it was expected to carry a $6bn price tag.