This is an edited story I put up on LinkedIn and Facebook recently and it has attracted some interest. I worry deeply when companies ‘over reach’. It means job losses. I’m hoping Gupta can find bridging finance for his company.
The previous owner of the Whyalla steel mill, Arrium, went in to voluntary administration with $4 billion of debt. About 3,000 jobs hung in the balance.
Then along came Sanjeev Gupta and his company GFG Alliance, who said the Whyalla mill ‘had a future’. He liked it so much, he bought the company for $700m.
Through a dazzling run of acquisitions around the world, in little more than five years the 48-year-old has gone from a little known commodities trader, to the captain of an industrial powerhouse with $20bn in annual turnover and 35,000 employees.
His interests span metals, mining, renewable power and even banking. Mr Gupta has rescued failed or unwanted factories stretching from Scotland to South Australia to America.
GFG Alliance’s other Australian interests include an East Coast integrated manufacturing, distribution and recycling business, formerly known as OneSteel, coking-coal operations in NSW, iron ore mines in South Australia, and the iron ore bulk handling facility at the Whyalla port.
Where did the money come from? Lex Greensill, a 43-year-old billionaire financier from Australia, provided GFG with about $6 billion dollars from Greensill Capital (some say $4 billion).
His company just went in to liquidation for engaging in the type of packaging and on-selling of exotic debts, which bought on the GFC. It’s important to remember that this is money GFG owes Greensill. Someone, sometime soon is going to come calling on Mr Gupta to stump up the cash. That’s nasty.
According to the Financial Times last year, more than dozen current or former employees from GFG, plus a review of public and private documents, revealed a host of difficulties. From unhappy lenders, delayed supplier payments and a number of businesses with accounts in the red, they paint a picture of an over stretched organisation.
Last year there were accusations by contractors in Whyalla that GFC were late in paying about $1 million in outstanding accounts. Sound familiar?
In SA, Gupta was going to launch a $1 billion upgrade of the Whyalla plant, but that has been postponed. He also planned to develop 1GW of renewable energy, starting with the 280MW Cultana Solar Farm near Whyalla. That is looking past tense too.
Last year, Gupta asked Treasurer Rob Lucas to advance the $50 million support package for the Whyalla steelworks promised by the former Labor government. ‘Not on your nelly if you’re going to use it to pay off debt,’ said Lucas. South Australia is around $15 billion in debt this year, rising to $25.5 billion by 2024? Lucas might be thinking about that too.
Gupta’s GFG Alliance’s is starting to look like a house of cards. I hope I’m wrong. There are about 6000 jobs riding on GFC Alliance in Australia, and almost 3000 of those are in SA.
SA Premier Steven Marshall said the government had been briefed by Mr Gupta.
“We were assured by Mr Gupta that the immediate cash requirement to continue operating here in South Australia is secure,” the Premier said.
Now I’m worried.