The Australian government has raised the prospect of providing finance to save steelworks owned by the British entrepreneur Sanjeev Gupta, whose business empire is facing a multibillion-dollar debt crisis.
More than 1,000 jobs are directly at risk and more are likely to be lost if the Whyalla mill in South Australia, which powers the town’s economy, is closed down.
The outlook for Gupta’s Australian business deteriorated on Tuesday when Citibank, acting on behalf of Credit Suisse, took a subsidiary of his GFG Alliance group to court in New South Wales in an attempt to wind up two of his operations – OneSteel Manufacturing in Whyalla and Tahmoor Coal in New South Wales.
If successful, it could trigger the appointment of liquidators to the Whyalla steelworks and its associated mines, which employ more than 1,800 South Australians, and to the Tahmoor coalmine, which has about 380 workers.
Australia’s finance minister, Simon Birmingham, tried to reassure the workforce, saying it was early days, with the initial court hearing not scheduled until 6 May. “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,” he told the ABC radio station on Thursday.
Birmingham, the most senior South Australian in the federal government, said financing options provided the last time the steelworks moved into administration were being considered. “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,” he said.
The previous owner of the Whyalla mill, Arrium, collapsed in April 2016 with debts of more than A$2.8bn. Gupta bought it and other Arrium assets from the company’s administrators in 2017 for $700m, in a deal that involved the South Australian government making a $50m loan available towards refurbishing the ageing mill.
The $50m has yet to be drawn on and the state’s treasurer, Rob Lucas, says it cannot be used to pay down debt.
The winding up application is the latest setback for Gupta’s global business after the collapse of the lender Greensill last month.
Credit Suisse indirectly provided funding to Gupta’s empire through funds it ran for Greensill, a finance group headed by the former Bundaberg sugar farmer Lex Greensill and advised by the former British prime minister David Cameron.
The Swiss bank is trying to recoup some of the money it is owed by breaking up Gupta’s Australian assets. It is believed to have exposure of about $4bn to the Gupta empire, of which several hundred million dollars relate to the Australian operations.
Gupta’s UK-based company, GFG Alliance, has vowed to fight the court action. “Any proceedings instituted by Credit Suisse will be vigorously defended,” it said. “GFG confirms it has received multiple offers of finance from large investment funds and is in advanced due diligence. The Australian businesses are performing well and generating positive cashflow, supported by the operational improvements we’ve made and strong steel and iron ore markets.”
It is the second lawsuit Credit Suisse has launched against Gupta’s businesses since the Greensill collapse. Last month it took legal action in London seeking to have the trading company Liberty Commodities wound up.
Steven Marshall, the South Australia premier, and the Australian prime minister, Scott Morrison, have discussed providing bridging finance to keep the steelworks afloat should creditors take control of GFG.
Birmingham said Australia’s sovereign capability to produce steel was one factor in the government’s considerations. “The Whyalla community should know that everybody is doing all the work they should be doing to make sure that we maintain that steelmaking capability for Australia,” he said.
He said GFG was talking to alternative financiers and he had confidence that the company could navigate the crisis without going into administration.
Lucas, speaking to ABC radio on Wednesday, said one lesson of the Covid-19 pandemic was that Australia’s capacity to produce steel was “something which is important to the national government and to the nation, so I think that is something which would give some comfort also to the Whyalla people”.
He stopped short of offering to finance the mill, saying Gupta had expressed confidence he could refinance his empire. “If he can do that successfully, well then he’ll continue to operate as he has been operating,” he said.