Canberra mulls Whyalla steelworks rescue plan if Sanjeev Gupta falls
Morrison government confirms it is working on a back-up plan to keep Sanjeev Gupta’s Whyalla steelworks afloat.
The Morrison government has confirmed it is working on a back-up plan to keep Sanjeev Gupta’s Whyalla steelworks afloat, after a move by creditors to seize control of his local industrial operations.
A South Australian government contingency plan to provide bridging finance has been canvassed with Scott Morrison since early last month after the collapse of its main lender, Greensill Capital.
Minister for Finance Simon Birmingham said it was closely following the unfolding situation after a court action to wind up OneSteel Manufacturing, owner of Whyalla, and the Tahmoor coal mine had put 2000 jobs on the line.
“Governments are monitoring this situation very closely and indeed doing the type of contingency thinking and planning that would be prudent in these sorts of circumstances,” Senator Birmingham said.
“Governments do need to be mindful of the experiences we’ve seen before when Whyalla has moved into administration, where we did have to provide some financing options for the steelworks that enabled it to continue working during that period of administration.”
South Australian Premier Steven Marshall said the government was prepared to step in depending on the results of a promised refinancing by Mr Gupta and looming court action from investors owed money.
For at least the past two weeks, the Prime Minister has been receiving briefings on the fallout of Greensill’s collapse and its implications to GFG and Whyalla.
Department of Prime Minister and Cabinet deputy secretary Simon Duggan said multiple government departments are assessing the situation at the Whyalla steelworks, which Mr Gupta bought in 2017 after previous owner Arrium fell into administration.
“We are engaged in processes at the departmental level to think about how we best advise the government in that regard,” Mr Duggan said in response to questions from South Australian senator Rex Patrick at senate committee late last month.
“There are a group of departments, led by the department of industry, that are engaged in providing that advice, including the Treasury, the finance department and ourselves”.
Still, Senator Birmingham said it was a complicated process.
“The way the legal obligations work on administrators is such that they have to be very cautious about what extra debts they accrue while they’re in the process of paying out the existing liabilities and trying to find new owners.”
“And so that is something that government has looked at in the past and that working closely with Steven Marshall and the state government, our government continues just to make sure we are looking at those examples from the past and being mindful of how we could respond if we need to, depending upon how these legal matters and financing matters proceed.”
Mr Gupta’s GFG said on Wednesday it was considering term sheets from “large investment funds” that would be more than enough to repay creditors.
The court wind-up hearing is set for May 6 and follows parallel action in the UK courts amid attempts by Mr Gupta to secure about $500m in new funding for his Whyalla steelworks to plug the funding gap left by the demise of Greensill Capital.
A lengthy legal dispute could ensue although Senator Birmingham still hopes Whyalla owners GFG Alliance can pull off a refinancing.
“There would be potentially quite some legal process based on what Mr Gupta and GFG Group have indicated before there could be a legal determination to put them into administration. And through all of that time, as I said before, we need to be ever mindful that GFG keeps indicating publicly that they are talking to alternative financiers.”
“Hopefully GFG can and based on their public statements, we should have some degree of confidence that they will navigate this situation themselves without the period of administration and uncertainty.”
The corporate regulator has also begun assessing what exposure Greensill’s collapse has had on GFG suppliers, The Australian can reveal.
Australian Securities & Investments Commission deputy chair Karen Chester told a recent Senate committee that the regulator’s response to Greensill had been limited, given many of the entities involved in the collapse overseas. Therefore ASIC had been reliant on regulators in the UK and Germany to “keep us informed”.
But Ms Chester said the close ties between Greensill and GFG and threat of contagion had been an issue ASIC had been aware of in the past few months and had just begun investigating Greensill’s relationships with other corporate entities in Australia.
It comes on top of ASIC “working in lock-step with APRA”, to gain a greater insight around the exposure of Australian insurers to Greensill, as well as the financier spruiking a $US600m ($787m) pre-IPO capital raising last December which was quickly abandoned.
“The close connections to some of the other related parties are matters that we‘ve only become aware of during the course of this year, not last year, when we were looking at it more closely. At the moment we will be understanding the exposure of Australian business suppliers and investors,” Ms Chester said in response to questions from Senator Patrick.
“Were going to be liaising with APRA on the insurance side of it. We’re going to be keeping in touch with the Financial Conduct Authority in the UK. We’re also looking at other relationships that the Greensill group may have had with corporate entities in Australia.
At a different Senate committee late last month, Ms Chester said Greensill was operating what “became an incredibly risking business model”.
“When they’re trying to transfer that risk to other parties like insurers, it turns what can be a very effective way for small and medium-sized businesses to manage their cashflows into high-risk management of those cashflows if the entity falls away and all of a sudden you’re without that cashflow management and you’ve got to redo it. But also to those who invested in the funds.”
Ms Chester said the regulator was looking into Greensill marketing securities to wholesale Australian investors, given “there were some Australian investment banks involved in promoting a potential IPO for Greensill late last year”.
The Morrison government also reiterated it was against a carve-up of Mr Gupta’s Australian industrial empire.
“In terms of the GFG Group, they do have a number of vertically integrated assets or in sort of layman’s terms, very highly connected businesses of different steel operations. And I don’t believe it would be in the interests of Whyalla, Australia or the nation overall to see those different assets broken up and sold separately as a whole they provide for a more profitable business,” Senator Birmingham said.
“And that is certainly an important consideration for us. But at present, there’s no application before government to see some parts of the business sold off and others go in a different direction.”
Fears are growing over the future of thousands of Australian workers just five years after Mr Gupta was hailed as a saviour for rescuing Whyalla from administration as part of a rapid-fire $15bn global acquisition spree.
Greens senator Sarah Hanson-Young called for the government to consider taking an equity stake in Whyalla to ensure its survival.
Whyalla has already made it through the toughest of times and should be a beacon of hope for renewable energy, not facing collapse again.
— 💚🌠Sarah Hanson-Young (@sarahinthesen8) April 7, 2021
The Morrison Govt should take an equity stake in steelworks to prevent its collapse and protect 1200 jobs.
“Whyalla has already made it through the toughest of times and should be a beacon of hope for renewable energy, not facing collapse again.
The Morrison government should take an equity stake in steelworks to prevent its collapse and protect 1200 jobs,” Ms Hanson-Young said on Twitter.
Additional reporting: Nick Evans
