The global empire of British businessman, Sanjeev Gupta, which includes the Whyalla steelworks and InfraBuild, is being laid bare by standard legal and accounting procedures. And the further those processes advance, the greater is the speculation over which entities might fail and which might survive. The parent company of all Mr Gupta´s businesses is GFG Alliance, which is privately owned by the Gupta family and is run by Mr Gupta. A GFG Alliance subsidiary, Liberty Primary Metals Australia, manages Mr Gupta´s Australian interests which collectively employ almost 7,500 people across 170 sites in NSW, Victoria and South Australia. However, it is his complex web of international businesses which is currently attracting the most unwanted attention. Documents recently filed in the United Kingdom show GFG Alliance has made no headway in repaying any of the US $587 million (AUD $870 million) it still owes Greensill Capital, the financial services company which underpinned GFG´s operations and which spectacularly collapsed in 2021. Concurrently, an investigation initiated in 2021 by Britain´s Serious Fraud Office into GFG Alliance is ongoing. Meanwhile, Europe’s largest steelmaker, ArcelorMittal,

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has applied to the English High Court to put one of Mr Gupta’s key holding companies – which covers most of his continental European operations – into administration. ArcelorMittal is pursuing what it argues is an unpaid debt of $228 million following its sale to Mr Gupta of half a dozen steelmaking plants in 2018-19. In Europe, there are separate liquidation or bankruptcy proceedings afoot against Gupta steelworks in the Czech Republic, Poland and Hungary. GFG Alliance has variously described these issues as being either normal commercial back and forth, or as being before the courts.

In another development, Britain’s corporate registrar, Companies House, is taking Mr Gupta to court for not filing accounts for 76 of his GFG Alliance British companies. Many of these entities are years behind with their legal reporting obligations. GFG Alliance says it has finalised unaudited accounts for its UK businesses and is in regular contact with Companies House. However, Companies House requires audited accounts. It is widely reported that Mr Gupta’s main auditor, King & King, quit in August 2022, saying there was not enough information to conduct the audits. It expressed concern over “the company’s ability to fund its future operations”. Another auditor, Lawrence Grant, walked away in August this year. The firm said it could not complete an audit of Liberty Onesteel Primary (UK) Limited – an entity associated with the Australian operations – because “audited group financial statements for the parent company were not available”.

It has long been noted that GFG Alliance shifts money from profitable entities within the group to support other entities. An example is Marble Power, an electricity trading company controlled by Mr Gupta. Marble Power supplies power to some of GFG Alliance’s British steel operations, yet it appears to have paid millions in payroll costs for other businesses in the group with which it has little connection. Accounts lodged in the UK by Marble Power for the 12 months to the end of March 2023, show it funded £11.8 million ($23 million) of payroll expenses for other GFG Alliance companies that year; while the remuneration of Marble Power’s own 16 employees at the time amounted to just one-tenth of that amount. Closer to home, after refinancing its debts last year, InfraBuild used some of that money to buy three subsidiaries from GFG Alliance. They were: Keystone Consolidated Industries, which runs an electric arc furnace, rolling mill and wire mill in Illinois and mesh manufacturing sites in Ohio and Mexico; Johnstown Wire Technologies, which runs plants in Pennsylvania and Ohio; and Georgetown steelworks in South Carolina. Each could be argued as a strategic investment by InfraBuild.

On October 14, the international credit ratings agency, Moody´s Ratings, downgraded InfraBuild´s long term foreign currency credit rating from B3 to Caa1 with a negative outlook. “The downgrade of InfraBuild´s ratings reflects the material decline in operating performance over the last 12 months due to softening market conditions, resulting in credit metrics breaching thresholds set for the previous rating as well as pressure on InfraBuild´s financial covenant levels,” Moody´s said. The agency said it believed InfraBuild´s current capital structure was unsustainable “given its materially high costs which we expect will result in negative free cash flow over the next 12 – 18 months and continue to put pressure on InfraBuild´s credit metrics and liquidity profile.”

Moodys said it expected InfraBuild´s performance to decline further over the next 12 months “as Australia´s sluggish residential activity continues to impact steel volumes sold, and as lower (albeit stabilising) steel prices and spreads reduce the company´s operating margins.” That said, the ratings agency also noted that in the medium to long term there will likely be scope for operating performance to improve as government-sponsored infrastructure spending and the need to address Australia´s housing shortage support long-term underlying demand.

In its statement, Moody´s also said it understands that InfraBuild has been negotiating to have funds currently under escrow released to help prop up GFG Alliance. Moody´s said: “We expect that these funds will be used for a distribution to facilitate a settlement at the ultimate parent group, GFG Alliance, with its creditors.”

“We also anticipate further cost pressures in fiscal 2025 arising from the unplanned production stoppages at its affiliate and supplier Whyalla steelworks,” Moody´s said. After a near four-month stoppage earlier this year, steelmaking at Whyalla went offline again recently due to “impurities” entering the blast furnace. Sanjeev Gupta recently described the steelworks as now being a loss-making enterprise. However, he said he remains committed to the future of Whyalla as a world-leading, carbon-neutral steel producer. In January, the federal government allocated $63 million to the steelworks to help facilitate its move towards green steel. In May, Mr Gupta announced a two-year delay for a proposed $500 million upgrade to an electric arc furnace at the steelworks.

In recent months, with staff being laid off at the steelworks and delays in contractors being paid, there is scepticism as to how much longer the GFG Alliance banner will fly over the operations at Whyalla. “People have had a gutful,” Buster Todd, from Avid Engineering, a metal fabrication business not far from the plant, told the Australian Financial Review. “I think the steelworks has got a future, but not while Gupta has the purse strings.”

Finally, the World Steel Association (WSA) has released its October Short Range Outlook which predicts global steel demand for 2024 will drop by 0.9% from its 2023 level to 1,751 million metric tonnes (Mmt). After three years of decline, the WSA expects to see a broad-based recovery in the world, excluding China, in 2025. Global steel demand is forecast to finally rebound by 1.2% in 2025 to reach 1,772 Mmt. You can see the full report here.