How a failed Korean steel mill deal sank Sanjeev Gupta’s Australian company

Sanjeev Gupta’s major Australian holding company collapsed when one domino in a lineup of odd transactions involving a Korean steel mill fell over. Picture: Bloomberg

Sanjeev Gupta’s major Australian holding company collapsed due to the failure of a hairbrained $1.5bn scheme to ship a Korean steel mill to a Romanian company now accused of involvement in a $360m carbon credit fraud involving Russian energy giant Gazprom.

We know. Take a deep breath and read that all again.

Even in the wild world of Sanjeev Gupta, this one is bonkers. But we promise we’re not making it up.

It’s all outlined in the creditors’ report prepared by William Buck’s Michael Brereton for Liberty Primary Metals Australia (LPMA) – Gupta’s holding company that owned South Australia’s Whyalla Steelworks and owns the Tahmoor colliery in NSW.

And, as it happens, also a mothballed electric arc steel furnace in South Korea – which links Romania and Australia in a way not seen since Lang Hancock blew up the family fortune by doing a stupid deal with Nicolae Ceausescu.

Gupta’s GFG Alliance agreed to buy the plant in 2022 for $US68m as steel prices were surging in the wake of the Covid-19 pandemic, through Romanian subsidiary Liberty Galati – which owns the biggest steelworks in the former Soviet bloc country.

Steel operations in Whyalla once controlled by British tycoon Sanjeev Gupta.

The plan was to cut the Korean plant into pieces, ship it to Romania and rebuild it. At a total cost of about $US1bn – which was about half the price of building a new one, according to GFG Alliance, keen to defend the hairbrained scheme.

But in 2023 the European Union slashed subsidies for steel production, making it more cost effective to restart the plant in Korea. So in 2024 Liberty Galati “novated” the acquisition to LPMA under a deal which, as we understand it, is like Afterpay but for stuff that costs more money.

LPMA was supposed to start paying this off in 2024, except the Whyalla blast furnace blew up in routine maintenance and Tahmoor had to shut down for a bit to move to a new mining area. So, no cash was coming in.

Which meant, according to William Buck’s report to creditors, “the LPMA Group began to suffer cash constraints”. Go figure.

Then the South Australian government sent KordaMentha into Whyalla this year. And the fact that Gupta had stripped $427m from the profitable Tahmoor mine in the interim meant there weren’t any cash reserves left to pay for the South Korean steel furnace, by the look of things.

Meanwhile in Europe …

Let’s be clear from the outset, GFG denies any wrongdoing, and says all of the Romanian transactions with carbon credits and money movement were above board and approved by external lawyers and then audited.

But in early November Romanian authorities raided Liberty Galati’s offices and the homes of directors, accusing the company’s management of tax evasion and unlawfully transferring money to other parts of its corporate empire through fraudulent contracts and fictitious loans between 2019 and 2022. Including an alleged carbon credit rort involving Russian majority state-owned energy giant Gazprom, just ahead of Russia’s invasion of Ukraine.

Why does any of this matter? It doesn’t, in a way.

All it does is give another insight into the bonkers world of Sanjeev, and the lengths he’s gone to keep alive his dream of turning ageing industries into a global metals empire.

But it’s also the lead-up to a situation in which 600 or so workers in Tahmoor – still a viable coal mine – are wondering whether they’ll have a job in January.

Here’s the thing. William Buck and Brereton are recommending that creditors of LPMA – the owner of Tahmoor – accept a deed-of-company arrangement (DOCA) from Gupta’s other companies to solve its debt problems.

LPMA’s only real asset is Tahmoor – shut down, but still a good mine. It could have been sold a year ago, cash up front. There were bidders offering to do it; Margin Call has spoken to them.

But, as the creditors’ report reveals, instead Gupta loaded up Tahmoor with debt from Oaktree Capital through other GFG companies in the UK.

There are at least two other offers for Tahmoor on the table, as we revealed on Monday. No mention of them in the William Buck report to creditors, because the debt load at Tahmoor means Oaktree and Gupta’s companies will be first in line if Tahmoor is sold.

Instead the deal on offer says that creditors will get paid from the sale of the Korean steel mill to a scrap merchant, with any proceeds from the sale of Tahmoor – by Gupta’s companies – as a bonus. That’s worth maybe 60c in the dollar.

GFG has told William Buck that LPMA’s trade creditors will get paid all they are owed. Which depends on the South Korean steel mill getting sold and everything else going well.

Otherwise, Gupta’s UK company, Clydesdale Engineering – best known for making brake pedals for carmakers – owns a coal mine in New South Wales.

If Gupta sells Tahmoor within 18 months of the deal being done by LPMA creditors, that money goes into the pot for trade creditors as well.

If he sells it in 19 months? Your guess is as good as ours.