Business

Gupta worries were mounting before Greensill fell

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KPMG was paid $2.2 million for providing audit and assurance services during 2019-2020 to the two entities which house the Australian businesses of Mr Gupta’s GFG Alliance.

Liberty Primary Metals Australia Pty Ltd is the entity that houses the Whyalla steelworks and the Tahmoor coking coal operations in New South Wales, which for the 12 months ended June 30, 2020 made a bottom-line loss of $125 million.

Job security fears

The financial accounts lodged with the Australian Securities and Investments Commission on November 12 last year were signed off by KPMG. Directors Sanjeev Gupta and Rajeev Gandhi, chief financial officer of Mr Gupta’s SIMEC Group, included a caveat that there was “material uncertainty” about whether it could keep operating as a going concern because of the need for additional funding over the next 12 months.

The accounts were lodged months before concerns emerged publicly about the plight of Greensill Capital, the supply-chain finance company of Bundaberg-born Lex Greensill, a large financier to GFG Alliance.

Court documents in Britain outlined that Greensill had provided Mr Gupta’s empire with funding worth as much as $6.5 billion and was a key financier of the GFG network of steel and aluminium plants around the world.

Mr Gupta publicly acknowledged on March 9 that Greensill Capital’s collapse had created “disruption” and “a challenging situation” for GFG Alliance.

The ASIC accounts for Liberty Primary Metals Australia show there were concerns about the broader picture at that entity which runs the Whyalla steelworks and Tahmoor coal.

“There remains, however, a material uncertainty as to whether the Consolidated Group can continue to operate as a going concern in the period 12 months from the date of the approval of the financial statements given the need to secure additional funding and/or further shareholder support in order to continue as a going concern,” the accounts stated.

The entity’s accounts also detail a $422 million receivables purchase facility under its interest-bearing liabilities section for 2019-2020. The accounts state that is linked to a receivables purchase agreement, based on the group’s future receivables.

The Greensill business model revolved around Greensill packaging together the invoices owed to suppliers, selling them off to banks and investment funds. Mr Greensill’s packaged securities, instead of being rated by credit ratings agencies, were insured by specialist trade finance insurers.

The Greensill empire rapidly unravelled last week after a key insurer refused to renew critical insurance cover for its bond issuance, and Germany’s financial regulator froze the operations of the group’s Bremen-based bank. This in turn prompted two Swiss fund managers to shut down a central source of funding for the group.

The Greensill strife has sparked fears over job security of GFG’s 6500 Australian employees, with 1500 working at the Whyalla steelworks and the remainder in the Infrabuild business, which operates mainly in the eastern states of Australia.

Infrabuild is a better-performing business than the Whyalla steelworks. Infrabuild comprises two electric arc furnaces, 10 manufacturing mills in Sydney, Melbourne and Newcastle, and a national network of steel distribution sites and recycling operations.

Its financial accounts are lodged with ASIC under the entity of Liberty Infrabuild and showed that in the 12 months ended June 30, 2020, revenues were $3.85 billion and net profit after tax was $11.6 million.

KPMG was paid $1.75 million for audit services to Liberty Infrabuild and $484,000 for auditing of Liberty Primary Metals Australia.

GFG Alliance has dozens of different companies under its umbrella. Accounts lodged for Liberty OneSteel with the British companies regulator on January 27 were audited by British chartered accounting firm King & King, based in Regent Street in London. Those accounts explain that Liberty OneSteel in Britain is a holding company that houses the Australian businesses plus a unit called Arrium Mining Services Asia, which is incorporated in Hong Kong.

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