Whyalla steelworks deliver for Sanjeev Gupta’s Liberty Primary Metals
Sanjeev Gupta’s Australian steelmaking and coal business has booked its best profit result under the British industrialist’s ownership, but the impact of the Greensill collapse still lingers.
Sanjeev Gupta’s Australian steelmaking and coal business has booked its best profit result yet under the British industrialist’s ownership – but still needs to find more than $150m to rid itself of the lingering impact of the collapse of Greensill Capital.
Accounts filed with the corporate regulator show that Mr Gupta’s Liberty Primary Metals booked a $434.2m profit for the 12 months to June 30, helped by surging coal revenues from its Tahmoor colliery south of Sydney, where income rose 30 per cent.
The Liberty Primary Metals vehicle includes the Whyalla steelworks in South Australia and associated iron ore mines, as well as the Tahmoor operation.
But while the company paid off $148m of emergency financing it took on after the collapse of Greensill in March 2021, its accounts show it still needs to pay off or refinance another $150.5m by the end of this financial year.
Liberty was caught short by the collapse of Greensill – its main lender – having drawn down about $430m though a receivables purchase agreement via a supply chain financing program.
Mr Gupta nearly lost control of the business in the wake of the collapse as Greensill’s own major lender, Credit Suisse, scrambled to claw back any funding it could to cover its own problems. It had repackaged the lending into bonds sold onto institutional investors.
In April 2021, lawyers acting on behalf of Credit Suisse and Citibank filed a winding up in insolvency application for OneSteel Manufacturing – which controls the Whyalla steelworks – and Tahmoor Coal in an effort to force Mr Gupta to cough up the $430m owed to Greensill through Liberty Primary Metals.
By October surging steel prices had added some stability to Whyalla’s finances and, after extended negotiations, Mr Gupta was able to refinance the debt.
Liberty repaid $150m and took on another $272m worth of short-term debt, repayable by June 2023. Liberty’s latest accounts show it has paid off $149m since then, but still owes about $150.5m.
While the group held only $78.6m in cash at the end of the financial year, and analysts expect local steel pricing to soften in the first half of 2023, strong coking coal prices underpinned Liberty’s annual returns last financial year and are likely to continue to hold up its earnings into 2023.
Liberty’s accounts show it booked $3.1bn in revenue last financial year, with steel sales delivering 43.3 per cent of that, or $1.35bn – up 40 per cent on the previous year. Sales of iron ore from its SA mines delivered another $950.8m in revenue, down from $1.15bn the previous year.
But record coking coal prices, which hit about $US600 a tonne in May, helped Liberty, with Tahmoor sales delivering $846.7m in revenue – up 245 per cent, or $601.7m, from the previous year.
Mr Gupta’s plans for the expansion of Whyalla, which include hopes of eventually producing zero carbon emission steel, have been hampered by covenants included in its 2021 refinancing package, which restrict capital spending at the plant, and the distribution of profits to other parts of his sprawling GFG Alliance metals and manufacturing global empire. The industrialist is expected to expand on his future plans for Whyalla on Friday, when he speaks at the inaugural South Australia Investment conference in Adelaide.
But the strong profits at Liberty Primary Metals will help ease lingering concerns about the viability of the operations as steel and iron ore prices fall, and energy prices rise.
Those concerns will also be helped by GFG’s announcement in November it had agreed a term sheet covering debts – believed to be worth $5bn – owed to Credit Suisse and Greensill.
At the same time Mr Gupta is believed to be seeking to refinance high-yield bonds issued by his flagship Australian business, Infrabuild. Financial accounts filed late last month show Infrabuild booked an after-tax profit of $283.9m last financial year, on revenue of $6bn. The accounts show Infrabuild owed $477m on its bonds at the end of June, with the notes carrying a headline interest rate of 12 per cent. They are due to mature in October 2024.
InfraBuild makes and distributes steel “long products” at its Australian operations in Newcastle, Laverton, Geelong and other Australian sites. It has 26 scrap metal recycling centres across Australia and centres in Poland, the US and Hong Kong.
On November 30, The Australian’s DataRoom column reported investment bank Jefferies was expected to launch a process to refinance InfraBuild. Bain Capital had been in prolonged talks about such a deal, but had walked away, it reported.
InfraBuild is raising finance to buy three US businesses from GFG Alliance: Keystone Consolidated Industries, which operates in Illinois, Ohio and New Mexico; Johnstown Wire Technologies; and the Georgetown steelworks in South Carolina.
Mr Gupta acquired Whyalla steelworks and other assets from Arrium in 2017 after it fell into administration. The following year, he bought Glencore’s Tahmoor coking coal mine.
GFG Alliance employs about 35,000 people around the world, including Liberty Primary Metals, Infrabuild and a manganese smelter in Tasmania. GFG runs about 200 manufacturing plants in 10 countries.
