South Australia mulls bridging loan for Sanjeev Gupta’s Whyalla steelworks
The South Australian government has considered an emergency funding plan to keep Sanjeev Gupta’s Whyalla steelworks afloat.
The South Australian government has considered an emergency funding plan to keep Sanjeev Gupta’s Whyalla steelworks afloat, after a move by creditors to seize control of his local industrial operations.
A court action to wind up OneSteel Manufacturing, owner of Whyalla, and the Tahmoor coal mine has put 2000 jobs on the line as Mr Gupta fights off a liquidation threat, saying he has received “multiple offers of finance” from investment funds.
A state 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.
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.
“In the past the South Australian government has stepped in to provide short-term loans for suppliers to manage their cashflow,” Mr Marshall said on Wednesday, noting Mr Gupta’s GFG Alliance had not asked for a government bailout.
“There’s a couple of scenarios here: one is that Sanjeev Gupta will find a way to refinance GFG ahead of that time frame avoiding that situation. The second one is that it will be heard in the Supreme Court and then it is up to the court whether they will or won’t appoint an administrator.
“I know the federal government is very keen to make sure we have a sovereign capability in steel manufacturing in Australia.”
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 move 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.
Key crossbench senator Rex Patrick said he hoped “Mr Gupta punches his way through this because the guy has plans for Whyalla”.
But he said the government should start making plans to ensure the steelworks stay open in the event GFG becomes insolvent.
“I’ve been calling on the PM to make a statement that doesn’t necessarily go to propping up GFG because there is opaqueness and complexity about its financial arrangements. But the Prime Minister should at least stand up and say ‘whatever happens here, we are backing Whyalla’,” Senator Patrick said. “That might be a case of if … it goes into administration, the government can put in sweeteners, levering off things like the contracts for inland rail, tweaking fulfilment policies that mandate the use of Australian steel. So there is a number of things the government can do.
“I’d be happy if Gupta punches his way through this because the guy has plans for Whyalla. But if he is not in a position to do that, rather than stepping in and propping up a billionaire who’s run into trouble, we stand by Whyalla rather than the current owner.”
Industry Minister Christian Porter called for all parties to find a speedy resolution to the crisis.
“The government also urges the parties to engage in their proceedings fully understanding the importance of the Whyalla Steelworks and Tahmoor Coal Mine to the broader Australian economy and the local communities that depend on those operations,” Mr Porter said.
Senator Patrick has been liaising with GFG suppliers in Whyalla that he said have become used to not being paid on time, describing it as “a continuous cycle”.
But he said the situation had worsened to the point that some suppliers were now withholding services until they were paid up front and the winding-up proceedings brought by Citibank was “deeply concerning”.
“This latest development is deeply concerning and is the sort of scenario I have been urging government to prepare for. There are just so many things that are outside Mr Gupta’s control in all of this,” Senator Patrick said.
“I have now subsequently talked to other people who have made a decision not to supply until money is paid up front. I think that will be making things a little bit more challenging for GFG.
“If people are doing well, and are not dependent on GFG, they are probably in a position to say ‘sorry up front, or not at all’. Sadly, it’s the people who are solely dependent on GFG, and probably can’t afford it, who are the ones who end up doing the work and suffering late payments.”
The court action comes as Mr Gupta struggles to contain the fallout of the collapse of his key financier, Greensill Capital, which fell into administration last month.
Despite racing to refinance about $US5bn ($6.56bn) owed to Greensill, Mr Gupta has remained defiant, saying the debt is not due for another three years and none of steel plants would close under his watch.
The NSW Supreme Court action follows five days after Credit Suisse sought a winding-up order of his $US6bn metals business Liberty Commodities.
The Swiss bank has applied to a London insolvency court for administrators to file the order regarding Liberty Commodities, with the action bought by Citibank as a trustee. Credit Suisse had $10bn of funds invested in loans arranged by Greensill that included debts packaged up by businesses run by Mr Gupta.
Liberty Commodities, established by Mr Gupta in 1992, trades raw materials while also structuring finance, logistics and risk management solutions.
At the same time, Mr Gupta is negotiating directly with Greensill’s administrator Grant Thornton in an attempt to strike a standstill on a $US5bn debt owed to the financier’s UK arm, offering protection from creditors as he races to find alternate financing.
Mr Gupta, whose empire employs 35,000 worldwide, said playing hardball on calling in loans will help no one, and it made no sense to close his plants, many of which he bought on the brink of collapse or from administration.
