Sanjeev Gupta ‘stonewalling’ Whyalla steel probe

Administrators will turn their investigation to the ‘complex web’ of deals between the magnate and the collapsed steelmaker.

Sanjeev Gupta’s private company is allegedly making access to OneSteel’s full accounts difficult for administrators. Picture: Mark Brake

Administrators of Whyalla’s OneSteel will turn their investigation on the “lawfulness” of the complicated web of related transactions between Sanjeev Gupta’s private companies and the collapsed steelmaker.

The move comes as KordaMentha accused the Dubai-based Gupta of stonewalling their probe, looking at the events surrounding Whyalla’s collapse, by preventing access to financial accounts held by Gupta’s private empire.

In an explosive affidavit lodged with the Federal Court, KordaMentha has warned OneSteel has insufficient funds to meet its forecast operating expenses, meaning it could run out of cash by the middle of May. Years of underinvestment in OneSteel has left the Whyalla mill “in a state of disrepair,” they warned.

Part of the reason for the cash strain is before OneSteel was placed into administration it appeared to have accepted prepayments from some customers for inventory “that it has not yet delivered and is not yet in existence”, KordaMentha said.

“OneSteel also continually sold product to InfraBuild at less than the cost OneSteel incurred in producing that product,” it added.

The South Australian government appointed KordaMentha as administrator of the Whyalla steelworks and associated businesses a month ago.

The appointment comes amid major upheaval in global steel markets as US President Donald Trump has slapped tariffs on all steel imports.

South Australian Premier Peter Malinauskas and state infrastructure minister Tom Koutsantonis meet with Whyalla steelworkers earlier this month. Picture: Tim Joy

OneSteel owes more than $1.3bn across 68 secured creditors and 648 unsecured creditors, according to the affidavit. Of this, employees are owed nearly $200m.

The South Australian government is the smallest cohort of creditors, owed $40m linked to water and royalties. Both the South Australian and federal government have pledged hundreds of millions to support the business.

At a creditors meeting earlier this month, KordaMentha said OneSteel was on track to deliver annualised losses of nearly $550m this financial year, given it was losing $1.3m per day. It has since upped this loss estimate to $1.5m a day.

In the affidavit KordaMentha said the intermingling of the operations between OneSteel and Gupta’s privately held GFG Alliance-linked companies is apparent from a shared services agreement, pre-sales to InfraBuild and other “complex arrangements”.

“The administrators have not currently commenced, but will need to, investigate the nature, impact and lawfulness of these related party transactions, arrangements and relationships,” the affidavit states.

They warned this will take “significant time” and on Tuesday the Federal Court approved the scheduling of a second creditors meeting for up to 12 months given the significant work and complicated nature of rescue job ahead.

“OneSteel will not be viable and investible in the long term unless it is able to stabilise the business in the short term,” the administrators warned. This process could take at least four to six months, they added.

“Because of the underinvestment, inadequate maintenance and servicing of critical infrastructure, OneSteel’s steelworks are in a state of disrepair”.

One immediate challenge is the fact administrators “are yet to receive unfettered access” to the books and records of OneSteel, which are held by GFG Alliance.

Numerous requests have already been made, they said. However, if this is unsuccessful or too slow KordaMentha has warned it may need to take steps “to compel those with access to OneSteel’s books and records to produce them”.

It is also seeking the terms of the “safe harbour” arrangement GFG’s other key Australian business, InfraBuild, is working under, as revealed by The Australian. However GFG’s lawyers have so far declined to provide the information.

“Our clients have also read in the media that OneSteel was in Safe Harbour,” ABL”s Leon Zwier said in a March 7 email contained in the court documents. “

“If this is so, the Safe Harbour plan would have included a comparative analysis of the liquidation outcome of OneSteel and compared it to the plan. If OneSteel was in safe harbour it would have disclosed the plan to your clients too. Can you please provide a copy of that plan and the liquidation comparison.”

Olvera Advisors principal Damien Hodgkinson, who specialises in assisting companies dealing in crisis management and distressed investments, had been retained by entities related to Mr Gupta’s GFG Alliance and InfraBuild as it considers options for its business.

Safe-harbour protections typically involve drafting external consultants to help directors engineer a turnaround of the business without the risk they could be pursued for insolvent trading.

Directors of GFG Alliance itself, or related entities including InfraBuild, have sought the protections for their board, sources said.

On the appointment of the administrators last month Gupta’s GFG Alliance said it would “work cooperatively” with the administrators to ensure the sustainability of Whyalla’s operations.

While Mr Gupta claimed his companies are the biggest creditor of the failed steelworks, a state and federal government bailout package, which includes emergency payments for creditors, expressly rules out handing any money to entities related to the one-time mogul.

Originally published as Sanjeev Gupta ‘stonewalling’ Whyalla steel probe