Sanjeev Gupta pushes prepacked deal to save coal business from administration

Supplied images of Simec’s Tahmoor Colliery in NSW.

Here’s the problem we’d like you to fix, and here’s the solution we’d like you to recommend.

It could be a government tender, to be fair.

Instead it’s the way Sanjeev Gupta is trying to prop up falling dominoes in his global metals business.

Specifically, Liberty Primary Metals Australia (LPMA), parent company of Tahmoor Coal – the last of the viable businesses (probably) in Gupta’s Australian primary metals business, now the Whyalla steelworks and iron ore mines are gone.

Everyone involved with the mothballed mine, except Gupta, wants someone else to own the coking coal operation. Workers, creditors, unions, the NSW government. But not Gupta, who hocked part of his Indian steel business to borrow $25m from Oaktree Capital to keep his Tahmoor hopes alive, and is still trying to cobble together the debt to get it back operating.

The problem is debt. The solution? Strategic voluntary administration, followed by a proposal to take back control of the company when the immediate problem is fixed.

Which appears to be the play at LPMA, where William Buck’s ­Michael Brereton, Sean Wengel and Rashnyl Prasad are now in charge.

Public documents show companies associated with Gupta presented William Buck with a proposed deed of company arrangement proposal even before they’d agreed to take the gig.

British industrialist Sanjeev Gupta’s empire has been rapidly shrinking. Picture Mark Brake

Margin Call has no doubt that the William Buck trio have their legal responsibilities first in mind when considering their options at the company, and any decision to recommend a DOCA will be in the best interests of all creditors, not just Gupta’s interests.

But Gupta’s people have been acting like it’s a done deal, even so.

It was a plank in arguments made by senior GFG executive Theuns Victor to try to get the NSW government to lift a security over Tahmoor Coal’s mining tenements, put in place after Tahmoor failed to pay NSW taxpayers about $29m in royalties.

Gupta needs the security lifted so he can borrow more money from Oaktree Capital to get the mine back up and running.

The other factor is a $130m debt owed to contractor NRW Holdings over mining work done at South Australian iron ore mines, which has been snaking its way up Gupta’s corporate ladder ever since the South Australian government lost patience with Gupta and sent in KordaMentha at Whyalla.

Gupta’s GFG called in William Buck to LPMA the day before the Federal Court was due to hear a winding-up application brought on by NRW, forcing the delay of the court action.

Victor’s recent letter to NSW Resources Minister Courtney Houssos makes it clear the debt to NRW’s Golding Contractors was at the heart of the decision.

“The finance could not proceed while LPMA had unresolved debts to Golding Contractors,” his letter says. “LPMA was put into voluntary administration and a deed of company arrangement (DOCA) is currently being pursued by William Buck, the appointed administrator. It’s envisaged that a successful DOCA will allow funding.”

Pursuing is a strong word, given it was related companies that proposed the pre-packaged deal, before William Buck took the job.

Brereton told Margin Call the terms of a DOCA are still being discussed, and he’ll make a recommendation in a report to creditors on Friday. But he’s already indicated that the DOCA, proposed by Gupta’s Liberty OneSteel (Primary) UK and Clydesdale Engineering is probably the best option on the table.

The Federal Court may still upset the plan, with NRW back in court to argue its case on Wednesday.

And, last we checked, the NSW government still wanted its money before lifting the security over the tenements.